Gold Rises as Weakening Dollar May Spur Demand; Silver Gains

June 9 (Bloomberg) -- Gold rose, halting a two-session slide, on speculation that a weaker dollar will spur demand for the metal as an alternative investment. Silver also gained.

The U.S. Dollar Index, a six-currency gauge of the greenback’s value, fell from a two-week high on speculation that the global recession is ending, damping demand for the dollar as a refuge. Gold typically moves inversely to the currency.

“When we look at gold, we think that it’s going to be something that investors are going to increasingly want to have in their portfolios,” Peter Arden, an Ord Minnett Ltd. analyst, said today in a Bloomberg Television interview. “It’s an insurance policy. It’s all about giving greater certainty that financial assets are going to have some value.”

Gold futures for August delivery climbed $2.20, or 0.2 percent, to $954.70 an ounce on the New York Mercantile Exchange’s Comex division. Gold for immediate delivery rose $2.12, or 0.2 percent, to $953.93 in London at 7:09 p.m. local time.

Silver futures for July delivery gained 18.5 cents, or 1.2 percent, to $15.14 an ounce on the Comex. Silver for immediate delivery in London added 22.5 cents, or 1.5 percent, to $15.175 an ounce. The futures have gained 34 percent this year, while gold rose 8 percent.

Bullish on Gold

Gold may rise to as much as $1,200 an ounce, Barclays Plc technical strategy analysts said today in a report, citing a “secular uptrend” that keeps them “bullish” on gold in the medium term.

“It is silver that looks the most vulnerable,” based on the ratio of gold to silver, which was 63.7 at the close yesterday, the Barclays analysts said. “With the gold/silver ratio breaking higher, odds favor further upside towards 67.90/69.95 area resistance.”

“Gold is going to be well supported,” Ord Minnett’s Arden said. “We are not looking at anything dramatic in terms of going greatly higher, but it has the potential to. We think it’s going to be volatile, it’s going to move around.”

Gold may have further to fall, according to Jon Nadler, a senior analyst at Kitco Inc. in Montreal.

“The recent heated chatter of the four-digit citadel’s assault is fast losing traction, and the focus has shifted to how low the correction can take gold and/or where the supports may lie in coming weeks,” Nadler said today in research note.

Following the Dollar

Gold rose to $956 in the afternoon “fixing” in London from $952.50 in the morning fixing. The fixing sets the price used by some mining companies to sell their output. Spot prices, up 8.2 percent this year in London, last traded above $1,000 an ounce on Feb. 20.

“We expect gold prices to continue following the dollar trade,” Andrey Kryuchenkov, an analyst at VTB Capital in London, said today in a note.

“Gains could be limited as investors are still cautious of fresh investment after gold faltered around $991,” Pradeep Unni, an analyst at Richcomm Global Services in Dubai, said in a note.

Investment in the SPDR Gold Trust, the biggest exchange- traded fund backed by bullion, was unchanged at 1,132.15 metric tons, the company’s Web site showed as of yesterday. Gold assets in ETF Securities Ltd.’s exchange-traded commodities added 0.3 percent to a record 7.656 million ounces yesterday, according to its Web site.

Demand for bullion as a haven asset may decline as equities recover. The MSCI World Index of shares has surged 43 percent the past three months. Nobel Prize-winning economist Paul Krugman yesterday said in a speech in London that the U.S. recession may end by September.