Gold Climbs in New York as Dollar Weakens; Silver Advances

Jan. 16 (Bloomberg) -- Gold rose the most in five weeks as a weaker dollar boosted demand for the precious metal as an alternative investment. Silver also gained.

The dollar dropped as much as 1.2 percent against a weighted basket of six major currencies. Equities in Asia and Europe rose. Gold fell 5.6 percent in the previous four days as the dollar climbed 2.1 percent and the Standard & Poor’s 500 Index lost 5.2 percent. Last year, gold advanced 5.5 percent, the eighth straight annual gain.

“The dollar is weaker and the stock market is stronger, so people aren’t having to sell gold to cover losses in other markets,” said Matt Zeman, a metals trader at LaSalle Futures Group in Chicago. “There’s a general return to risk appetite.”

Gold futures for February delivery rose $32.60, or 4 percent, to $839.90 an ounce on the Comex division of the New York Mercantile Exchange, the biggest one-day advance for a most-active contract since Dec. 10.

Silver futures for March delivery gained 77.5 cents, or 7.4 percent, to $11.215 an ounce in New York. The metal slumped 24 percent in 2008.

U.S. equity indexes fell, giving up earlier gains, after the government said it would invest $20 billion in Bank of America Corp. and guarantee $118 billion of assets. Bank of America is the largest U.S. bank by assets and its bailout helped ease concerns that the credit crisis will deepen the recession.

Since the second quarter of 2007, banks worldwide have posted more than $1 trillion in credit losses and writedowns stemming from the collapse in the sub-prime mortgage market. By November, the U.S. had pledged $8.5 trillion to rescue financial companies and help the country recover from a recession.

Cash Hoarding

Investors earlier this week sold gold to cover losses in equity markets and hoard cash, boosting the dollar. Gold capped a second straight weekly loss while the dollar is poised for the third straight weekly advance.

“Advancing global stocks offered some relief to gold buyers and the government guarantees on toxic bank assets gave further room to maneuver in riskier assets,” said Jon Nadler, a senior analyst at Kitco Inc. in Montreal.

Gold may climb to a record in the first half of this year as historically low interest rates weaken the dollar and government bailouts spark inflation, London-based researcher GFMS Ltd. said yesterday in a report. Gold reached a record $1,033.90 an ounce on March 17.