Gold Rises for Second Day on Speculation Dollar Rally to Stall

Dec. 9 (Bloomberg) -- Gold rose for the second straight day on speculation that the dollar’s rally will stall, boosting the appeal of the precious metal as an alternative investment. Silver declined.

The dollar rose as much as 1.1 percent against a weighted basket of six major currencies before paring gains. The greenback dropped 1.8 percent yesterday. Gold is still headed for the first annual decline since 2000, while the dollar is poised for the first gain in three years.

“Gold is maintaining its relative strength compared to other commodities and other assets,” said Ron Goodis, a retail- trading director at Equidex Brokerage Group Inc. in Closter, New Jersey. “We all know interest rates are going down, and it’ll eventually weaken the dollar.”

Gold futures for February delivery rose $4.90, or 0.6 percent, to $774.20 an ounce on the Comex division of the New York Mercantile Exchange. The price climbed 2.3 percent yesterday after slumping 8.2 percent last week.

Silver futures for March delivery dropped 12.5 cents, or 1.3 percent, to $9.85 an ounce. The metal jumped 5.8 percent yesterday after sliding 7.8 percent last week. The most-active contract is down 34 percent this year.

The Federal Reserve will lower its benchmark lending rate 50 basis points to 0.5 percent on Dec. 16, according to the median estimate of 71 economists surveyed by Bloomberg. The federal-funds rate was at 5.25 percent in September 2007 before the Fed began slashing borrowing costs. Gold reached a record $1,033.90 on March 17 after rate cuts helped send the dollar to a record against the euro in July.

‘Pushed by Dollar’

Gold and most commodities generally move in the opposite direction of the U.S. currency. The metal is down 7.6 percent this year, while the dollar has gained 12 percent against the basket of currencies.

“Gold is being pushed back and forth by the dollar,” said Frank Lesh, a trader at FuturePath Trading LLC in Chicago.

Investment in the SPDR Gold Trust, the biggest exchange- traded fund backed by bullion, is little changed this month after gaining 1.2 percent in November to 758.1 metric tons.

The Reuters/Jefferies CRB Index of 19 raw materials has tumbled 40 percent this year. Only cocoa, hogs and sugar have posted gains. Gold has the smallest decline among the other prices for energy, crops and industrial metals.