Gold Rises to Two-Week High as Record Rates Drive Down Dollar

June 26 (Bloomberg) -- Gold touched a two-week high and marked its first weekly gain since May as the dollar weakened and a benchmark lending rate touched a record low in London, increasing the metal’s appeal as an alternative investment.

The dollar declined as the three-month London interbank offered rate, or Libor, slipped below 0.6 percent for the first time. The dollar-based rate, a benchmark for about $360 trillion in financial products, peaked at 4.82 percent on Oct. 10. On June 24, the Federal Reserve left unchanged its target bank- lending rate at zero percent to 0.25 percent, the lowest ever.

The “Fed’s decision to keep interest rates low for an extended period may give enough fundamental support to keep the metal firm,” Pradeep Unni, a Richcomm Global Services analyst in Dubai, said in a note. The dollar’s weakness provided “fresh momentum” for gold, Unni said.

Gold futures for August delivery rose $1.50, or 0.2 percent, to $941 an ounce on the New York Mercantile Exchange’s Comex division, after earlier touching $949, the highest since June 12. The 0.5 percent weekly gain was the first since May 29. The four-day rally was the longest in five weeks.

The U.S. Dollar Index, a measure of the greenback’s value against six counterparts, fell as much as 1 percent after Libor slid and China’s central bank reiterated its call for a “super sovereign” global reserve currency.

In London, bullion for immediate delivery gained $1.34, or 0.1 percent, to $940.59 an ounce at 8:17 p.m. local time. The metal slipped to $942 an ounce in the afternoon “fixing” in London, the price used by some mining companies to sell their output, from $943 this morning.

Falling Investment

Investment in the SPDR Gold Trust, the biggest exchange- traded fund backed by bullion, fell 5.5 metric tons to 1,125.74 tons as of yesterday, figures on the company’s Web site showed. That’s the biggest drop in physical supplies since April 17.

With “the slow pace of physical demand, gold is still vulnerable to profit-taking short term, and may look to consolidate in the $910-$950 area before pushing toward $1,000 again,” James Moore, an analyst at TheBullionDesk.com in London, said today in a note. Gold last traded above $1,000 an ounce in February.

To be sure, there are some “perma-bull gold bugs” to whom “the negative real-interest rate environment still presents the perfect golden opportunity,” Jon Nadler, a Kitco Inc. analyst in Montreal, said today in a note.

In another Comex market, silver futures for September delivery climbed 12.4 cents, or 0.9 percent, to $14.156 an ounce. The price declined 0.3 percent for the week, the fourth consecutive drop.