Gold Rises to Eight-Week High as Dollar Slides; Silver Gains

Dec. 11 (Bloomberg) -- Gold prices rose to the highest in almost eight weeks as a sliding dollar boosted the appeal of the precious metal as an alternative asset. Silver also gained.

Gold has jumped 9.9 percent this week as the dollar dropped 4 percent against a weighted basket of six major currencies. The metal reached a record in March as the greenback headed for an all-time low against the euro.

“The dollar seems to be under a lot of pressure and there’s still uncertainty to the economic outlook, and that’s giving a lift to gold,” said Stephen Platt, a commodity analyst at Archer Financial Services Inc. in Chicago. “Gold has held up better than any asset off the uncertain monetary outlook.”

Gold futures for February delivery rose $17.80, or 2.2 percent, to $826.60 an ounce on the Comex division of the New York Mercantile Exchange. Earlier, the price reached $835.30, the highest since Oct. 16. The metal was up for the fourth day in a row.

Silver futures for March delivery climbed 22.5 cents, or 2.2 percent, to $10.425 an ounce.

Gold is still down 1.4 percent this year, while silver has dropped 30 percent. Gold’s all-time high was $1,033.90 on March 17.

The dollar tumbled as much as 2.6 percent against the basket of currencies. The U.S. currency still has gained 9.1 percent this year on demand for a haven after banks worldwide reported more $986.5 billion in writedowns and losses related to investments in subprime-mortgage securities.

Fed-Funds Rate

The Federal Reserve began slashing interest rates from 5.25 percent in September 2007 as the U.S. economy headed into a recession. Policy makers probably will lower the lending rate 50 basis points to 0.5 percent on Dec. 16, according to the median estimate of 82 economists surveyed by Bloomberg News.

“Much of today’s action is tied to Fed rate-cut expectations next week,” said Jon Nadler, a senior analyst at Kitco Inc. in Montreal. “Non-existent yields on money instruments aren’t hurting either.”

Yields on one-month U.S. Treasury bills fell below zero for the first time after rates on three-month bills turned negative on Dec. 9.

Gold also climbed on expectations that the U.S. government’s attempt to stimulate growth and bail out banks and automakers will lead to inflationary monetary policy, analysts said. Gold is often used as a hedge against accelerating consumer prices.

The U.S. has pledged more than $8.5 trillion and the Federal Reserve has committed as much as $800 billion.

‘Expansionistic’ Policy

“The monetary policy is very expansionistic,” Platt of Archer Financial said. “We haven’t seen the inflationary impact yet, but it’s a possibility down the road.”

The Fed is also considering issuing its own debt as a funding source, rather than creating money.

“If we must account for gold’s rush higher in light of some fundamental news, let’s note the possible creation of debt securities by the Fed,” said Dennis Gartman, an economist and the editor of Suffolk, Virginia-based Gartman Letter. “If true and if done, this will be massively inflationary and is music to gold’s ears.”