Gold Ends 2009 With 25 Pct Return

Filed at 3:31 p.m. ET

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NEW YORK (Reuters) - Gold prices sealed their biggest absolute annual gain in three decades with a small advance on Thursday, rising for an unprecedented ninth year in a row after dollar-hedging traders and central banks joined investors who turned to gold for price performance and protection.

Bullion rose slightly as the dollar ebbed and oil climbed as high as $80 a barrel. Palladium jumped sharply to notch a record 119 percent return this year, bolstered by improving industrial demand and anticipation of more investment with the launch of a new U.S. exchange traded fund next year.

Spot gold stood at $1,095.50 an ounce at 2:14 p.m. EST (7:14 p.m. British time). It was up about $220 this year, a sum eclipsed in recent history only by 1979's $286 surge. On a percentage basis gold rose 25 percent from its 2008 close of $878.20, short of 2007's 31 percent rise.

After 2008's roller coaster, this year was one of fairly consistent gains for bullion, favoured as a hedge against economic uncertainties after the worst economic crisis since the Great Depression.

U.S. February gold futures on the COMEX division of the New York Mercantile Exchange settled up $3.70 at $1,096.20 on Thursday.

Spot bullion hit a record high at $1,226.10 on December 3 on a combination of renewed central bank interest, long-term inflation fears due to massive economic stimulus programs and fears over paper currency depreciation.

The dollar index <.DXY> is set to end 2009 down about 4 percent, though it had risen 4 percent in December.

"Gold ... has been outperforming not just the dollar since 2000, but also most developed currencies as well as most developed bond markets and most developed equity markets," Tom Fitzpatrick, chief technical analyst at CitiFX, told Reuters Insider in a television interview.

"Going forward, it will be an alternative to paper money. A currency, rather than a commodity, and that's what it's been doing so far," he said.

CENBANK BUYING FUELS SENTIMENT

Central banks also played a key role in aiding the rally during a year in which China revealed that it had secretly increased its reserves over the past five years to the world's fifth-largest by buying up domestic production, while India nearly doubled its holdings by buying half of the IMF's stockpile slated for sale.

Buying of investment products such as gold exchange-traded funds also fuelled the metal's rally. Holdings of the world's largest gold-backed ETF, New York's SPDR Gold Trust, have risen 353 tonnes or 45 percent in the year to 1,133.62 tonnes, ranking its holdings among the world's central banks.

Analysts say the outlook for prices in 2010 will depend on whether the Federal Reserve will tighten monetary policy to keep inflation at bay, and whether the dollar will extend its year-end rally.

Other precious metals staged equally impressive gains after last year's deep decline, with platinum set to gain a record 58 percent and palladium up 119 percent on improving economic conditions, as well as hope for a boost in physical demand from new U.S. exchange traded funds expected to launch soon. Silver also jumped by a record 49 percent.

Palladium hit a peak of $406.50 an ounce on Thursday, breaking through the $400-an-ounce level for the first time since July 2008. It was last at $404 versus New York's late Wednesday quote of $391, while platinum was at $1,464 versus $1,454 and silver at $16.81 versus $16.79.

(Additional reporting by Jan Harvey in London; Editing by Christian Wiessner)

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