Nov. 25 (Bloomberg) -- Gold climbed to the highest price ever, capping the longest rally in 27 years, as the dollar’s slump deepened and on a report that India’s central bank may add to last month’s 200 metric-ton purchase.

Gold reached a record $1,189 an ounce and has rallied 13 percent since Nov. 2, after India said it bought bullion from the International Monetary Fund. The country, the world’s largest gold consumer, may buy more from the IMF, the Financial Chronicle reported. U.S. Dollar Index, a six-currency gauge of the greenback’s strength, fell to a 15-month low.

“There is a lot of central-bank buying, hedge-fund buying and gold is obviously getting to $1,200 an ounce before the end of the year,” David Lee, a trader at Heraeus Precious Metals Management in New York, said in a telephone interview. The metal has climbed 34 percent this year, heading for the sharpest annual increase since 1979.

Gold futures for February delivery climbed $21.20, or 1.8 percent, to $1,188.60 on the New York Mercantile Exchange’s Comex division. Up for a ninth straight session, the most-active contract’s rally is the longest since August 1982. The metal has climbed 14.1 percent this month, heading for the biggest monthly gain since September 1999.

“Funds and central banks around the world are nervous about the future of the U.S. dollar and the world economy, and that’s why they are buying gold,” Lee said by e-mail. “We’ve reached ‘irrational-exuberance’ levels on many commodities,” including gold and copper, he said.

One-Way Trade

“The gold trade is as crowded as a Tokyo subway car at rush hour,” Jon Nadler, a Kitco Inc. senior analyst in Montreal, said by e-mail. “This has been a one-way, dollar- carry-fueled street since Sept. 1, and it has seen the market become decoupled from anything resembling its fundamentals -- kind of like oil became last year.”

Bullion typically moves inversely to the U.S. currency. The dollar index slid as much as 0.9 percent today after Federal Reserve officials described this year’s decline as “orderly.”

“We expect gold to continue to break through new highs” through this year, Scott Licamele, the director of emerging- markets research at Red Star Asset Management, said by e-mail. “The weak-dollar trend will continue as dollar-debasement fears persist.”

In London, gold for immediate delivery rose $17.42, or 1.5 percent, to $1,186.82 an ounce at 7:17 p.m. local time after touching a record of $1,187.38.

‘Going Ballistic’

“Gold is in uncharted territory as it continues to go ballistic,” Ralph Preston, a Heritage West Futures Inc. analyst in San Diego, said by e-mail.

“With today’s push over Monday’s high, look for residual momentum to carry prices to $1,200 an ounce before month’s end, which represents the next psychological stop on this runaway bull train,” Preston said. “I don’t see a bubble. I see a changing world order, and gold is a reflection of that change.”

The central banks of Russia and Sri Lanka have acquired gold recently, prompting analysts at Bank of America Merrill Lynch, Societe Generale and Barclays Capital to forecast more such purchases. Governments are the biggest bullion holders.

“Actions from central banks are very important at the moment,” said Eugen Weinberg, an analyst at Commerzbank AG. “The purchase from India was like a seal of prices above $1,000 an ounce. Also, other central banks are buying gold.”

Mauritius bought 2 tons of gold from the IMF last month for $71.7 million after India’s $6.7 billion purchase. Reserve Bank of India Governor Duvvuri Subbarao declined to comment on yesterday’s Financial Chronicle report, which didn’t say where it got the information.

More to Sell

The IMF, which set out two months ago to dispose of one- eighth of its gold reserves, still has more than 200 tons to sell. It will do so on a “first-come, first-served” basis, Andrew Tweedie, the head of the fund’s finance department, said in a Nov. 20 interview.

“Despite the run up we have seen in gold equities, we still see value in select miners that will outgrow their peer group, either organically or through acquisitions,” Licamele said. “Polyus Gold in Russia is a good example of this.”

The rally has pushed the 14-day relative strength index for futures above the level of 70 viewed by some investors and analysts who follow technical charts as a sign that prices may soon fall. Today’s reading topped 80.

“Technically, gold remains overbought,” Walter de Wet, a London-based Standard Bank Ltd. analyst, said today in a report. “We have seen some scrap metal coming to the market at current levels, but still not enough to offset buying.”

Among metals traded in New York, silver futures for March delivery gained 30.6 cents, or 1.7 percent, to $18.80 an ounce. Platinum for January delivery climbed $35.70, or 2.5 percent, to $1,479.50 an ounce, after touching a 14-month high of $1,482. March palladium rose $2.05, or 0.6 percent, to $372.85 an ounce.

To contact the reporters on this story: Nicholas Larkin in London at nlarkin1@bloomberg.net; Halia Pavliva in Kiev at hpavliva@bloomberg.net.

Last Updated: November 25, 2009 14:20 EST