Nov. 5 (Bloomberg) -- Gold futures rose for a fourth straight day on speculation that the Federal Reserve will trail other central banks in raising interest rates, driving the dollar down and boosting the appeal of the metal.

Gold rose to a record $1,098.50 an ounce yesterday after the Fed pledged to keep borrowing costs low for an “extended period.” The dollar dropped as much as 0.4 percent against the euro today before paring the decline.

“The U.S. can’t afford to raise rates,” said Frank McGhee, the head dealer at Integrated Brokerage Services LLC in Chicago. “That will weaken the dollar, and gold absolutely benefits from this scenario.”

Gold futures for December delivery rose $2, or 0.2 percent, to $1,089.30 an ounce on the Comex division of the New York Mercantile Exchange. The metal has gained 23 percent this year, heading for the ninth straight annual gain. The dollar is down 6 percent against the euro.

The Fed yesterday kept its benchmark rate at zero percent to 0.25 percent. Today, the European Central Bank and the Bank of England held their main rates at 1 percent and 0.5 percent, respectively.

The U.K. central bank increased its bond-purchase program by the lowest amount in three extensions. ECB President Jean- Claude Trichet said “extraordinary” measures to provide banks with funds will be gradually phased out.

“The U.S. policy is very accommodative,” Integrated’s McGhee said. “If there is continued pickup in economic activity, the rest of the world will raise rates before the U.S., and that will weaken the dollar.”

India’s Purchase

Gold climbed this week after the Reserve Bank of India said it bought 200 metric tons from the International Monetary Fund, paying market rates in the last half of October.

“Despite the prevailing high price, central banks from emerging economies are still willing to accumulate gold to diversify their currency reserves,” Eugen Weinberg, a Commerzbank AG senior analyst, said in a report. “Investors who had previously given gold the cold shoulder are now returning to the market on the news of India’s gold purchase.”

Gold may reach $1,300 should inflation concerns mount in the next year, Weinberg said today on Bloomberg Television. “At $1,100, gold is definitely not in a bubble yet.”

Some investors may sell the metal as prices near $1,100, analysts said. Bullion for immediate delivery slipped $2.30, or 0.2 percent, to $1,089.90 at 7:28 p.m. in London.

“Gold’s support level is at $980,” said Aaron Smith, a managing director of Superfund Financial Singapore Pte. “However, any dips in prices will incite buying activity.”

Last month, Smith said gold would rise to $2,000 in the next three years, citing “massive” inflation.

Silver futures for December delivery gained 0.5 cent to $17.41 an ounce on the Comex. The metal has climbed 54 percent this year.

To contact the reporters on this story: Nicholas Larkin in London at nlarkin1@bloomberg.net; Pham-Duy Nguyen in Seattle at pnguyen@bloomberg.net.

Last Updated: November 5, 2009 14:29 EST