Gold eases from record but sentiment stays bullish

TOKYO (Reuters) - Gold eased from record highs on Wednesday as investors took profits, but sentiment remained bullish and a fresh record was within sight as the dollar's weakness and inflation concerns reinforced bullion's appeal as a hedge.

Both spot gold and U.S. gold futures have benefited from factors including technical buying, growing talk of countries diversifying foreign reserves or settlement currencies away from the dollar, and inflation concerns fueled by current massive fiscal stimulus measures and aggressive monetary easing.

"The driving force for gold's rally is the declining confidence in the dollar, which helped elevate gold's stature, along with the explosive growth in gold-backed exchange-traded funds which broadened the investor base for bullion," said Shuji Sugata, a manager at Mitsubishi Corp Futures & Securities.

"Technically the market is very much in favor of the bulls as nobody can complain about gold prices rising, so barring profit taking that may cap prices for a short time, the market looks set to test fresh highs," he said.

The near-term target is likely $1,050 per ounce, but the $1,040 level offers good profit taking opportunities and may prove to offer resistance that market players need to clear first, he said.

Spot gold eased 0.3 percent to $1,037.55 per ounce at 0030 GMT, retreating from an all-time peak of $1.043.45 set on Tuesday.

Most-active U.S. gold futures for December delivery were little changed at $1,039.3 an ounce, also down from an all-time high of $1,045 hit on Tuesday. December contracts settled at $1,039.70 an ounce.

Investment flows picked up as the market rallied to the record highs.

The world's largest gold-backed exchange-traded fund, the SPDR Gold Trust, said its holdings stood at 1,100.514 metric tons as of October 6, up 0.2 percent or 2.441 metric tons from the previous business day for the third consecutive day of increase.

The holdings rose to a record high of 1,134.03 metric tons on June 1.

"There was some profit taking initially, but given the fact that we continue to see further weakening in the U.S. dollar, people might be tempted to hold on and I think it will push higher," said Darren Heathcote of Investec Resources in Sydney.

Gold has gained about 18 percent in the year to date.

The greenback remained pressured on Wednesday after the U.S. currency slid broadly the day before as an interest rate hike in Australia underscored concerns the Federal Reserve will lag other central banks in pulling out of its loose monetary policy.

Also weighing on the U.S. dollar was a British newspaper report that Gulf Arab states were in secret talks with Russia, China, Japan and France to replace the greenback with a basket of currencies in trading oil, though big oil-producing countries denied the report.

(Additional reporting by James Regan in Sydney; Editing by Joseph Radford)