Gold Prices Gain in New York as Dollar Weakens; Silver Climbs

May 19 (Bloomberg) -- Gold prices increased in New York as the dollar fell, boosting demand for the metal as an alternative investment. Silver also advanced.

The dollar weakened against the euro after Goldman Sachs Group Inc., JPMorgan Chase & Co. and Morgan Stanley sought to repay $45 billion in government bailout cash, according to people familiar with the matter. The banks need approval for the payments from the Federal Reserve. Some investors buy gold as an alternative to the dollar. The greenback fell as much as 0.7 percent against the European currency.

“The market has attracted some support in response to a weaker dollar,” said Stephen Platt, an Archer Financial Services Inc. commodity analyst in Chicago.

Gold futures for June delivery rose $5, or 0.5 percent, to $926.70 an ounce on the New York Mercantile Exchange’s Comex division. The price has gained 4.8 percent this year.

Silver futures for July delivery climbed 29.5 cents, or 2.1 percent, to $14.125 an ounce in New York. The metal has surged 25 percent this year.

“It is growing concerns about the weaker dollar in future, given the increasing likelihood of an inflationary period to come, that is really driving gold higher,” said Patrick Chidley, an analyst at Barnard Jacobs Mellet USA LLC in Stamford, Connecticut.

“The time has arrived when more and more people are clamoring for inflation to make a real comeback,” Jon Nadler, a senior analyst at Kitco Inc. in Montreal, said today in a report.

Weaker Dollar

The U.S. Dollar Index, a basket of six major currencies including the euro and yen, has dropped 3.2 percent this month, enhancing the appeal of gold as an alternative investment. The index fell as much as 0.9 percent today.

“Gold -- of course I’m buying it,” said David Roche, the president of Independent Strategy, in a Bloomberg Television interview. He said the Standard & Poor’s 500 Index of equities may tumble as much as 30 percent in coming months.

“There remain plenty of hedge funds whose bets on the commodities sector are keeping a floor under metals and energies,” Nadler said in the report.

U.S. builders broke ground on the fewest homes on record in April. Housing starts unexpectedly slid 13 percent to an annual rate of 458,000, led by a 46 percent tumble in more volatile apartment buildings and condominiums, Commerce Department figures showed today in Washington. Building permits, a sign of future construction, fell 3.3 percent to a record pace of 494,000 units.