Gold Rebounds as Dollar Drops, Commodities Rally; Silver Jumps

Dec. 8 (Bloomberg) -- Gold rose, rebounding from the biggest weekly loss since October, as the dollar declined, boosting the appeal of the precious metal as an alternative investment. Silver jumped the most in two weeks.

The dollar fell as much as 1.7 percent against a weighted basket of six major currencies. The Reuters/Jefferies CRB Index of 19 raw materials climbed as much as 4.7 percent after President-elect Barack Obama pledged the largest package of public-works spending since the 1950s.

“You’ve got the dollar weakening, and gold could not get to new lows,” said Frank McGhee, the head dealer at Integrated Brokerage Services LLC in Chicago. “The facts are on the positive side today with a lot of new buying coming in.”

Gold futures for February delivery rose $17.10, or 2.3 percent, to $769.30 an ounce on the Comex division of the New York Mercantile Exchange. The metal fell 8.2 percent last week, the most since Oct. 17.

Silver futures for March delivery rose 54.5 cents, or 5.8 percent, to $9.975 an ounce, the biggest gain since Nov. 24. The metal is still down 33 percent this year.

Gold and other commodities often move in the opposite direction of the dollar. Gold is heading for the first annual loss since 2000, while the greenback is poised for the first gain since 2005.

The dollar index has gained 12 percent this year, while gold dropped 8.2 percent. For the metal to sustain a rally, the dollar has to weaken further, analysts at Deutsche Bank AG said in a report on Dec. 5.

‘False Breakouts’

The U.S. may “employ a weaker dollar to reduce deflation risks,” Deutsche Bank said. “In this environment, we would expect rallies in the gold price to be based on more solid foundations, in contrast to the false breakouts that have occurred over the past few months.”

Since the collapse of Lehman Brothers Holdings Inc. in September, gold has traded as high as $936.30 on Oct. 10 and as low as $681 on Oct. 24. Some investors sold gold futures to raise cash and cover losses in other markets.

The Standard & Poor’s 500 Index has dropped 39 percent this year.

“Gold is still vulnerable to another round of asset deleveraging,” McGhee of Integrated Brokerage Services said.

Investment in the SPDR Gold Trust, the biggest exchange- traded fund backed by bullion, was little changed last week at 757.9 metric tons. The record was 770.6 tons on Oct. 10.