Gold Gains as Dollar Slips, Burnishing Allure of Precious Metal

Aug. 12 (Bloomberg) -- Gold advanced for a second straight day as the dollar weakened, boosting the appeal of precious metals as alternative assets. Silver gained, while platinum and palladium declined.

The dollar fell as much as 0.7 percent against a basket of six major currencies before easing losses after the Federal Reserve outlined plans to slow purchases of $300 billion in Treasury debt. The Fed left interest rates unchanged and said the economy is “leveling out,” in a statement. Bullion, which often falls when the dollar strengthens, pared gains.

“Gold was trading lower on expectations that the Fed’s slowing of purchases of Treasuries will boost yields and be supportive of the U.S. dollar and in turn pressure the price of gold,” Ralph Preston, a Heritage West Futures Inc. analyst in San Diego, said by e-mail.

Gold futures for December delivery rose $4.90, or 0.5 percent, to settle at $952.50 an ounce on the New York Mercantile Exchange’s Comex division before the Fed release. The most-active contract traded at $948.50 an ounce at 4:08 p.m. in New York, up 90 cents from yesterday.

Gold’s “near-term direction is likely to depend on the reaction to the Fed statement and whether the statement bolsters risk appetite or prompts a reduction in exposure,” James Moore, an analyst at TheBullionDesk.com in London, said in a report.

“We see today’s release as neutral for markets,” Camilla Sutton and Sacha Tihanyi, Scotia Capital currency strategists in Toronto, said today in a note. “We continue to believe that contained inflation and the ongoing fragile recovery will not leave room for the Fed to increase rates until the second quarter of 2010.”

‘Vulnerable’ Dollar

“We think the dollar is vulnerable to downside pressure,” because expectations for a Fed rate increase have been pushed back, the strategists said.

Bullion for immediate delivery in London advanced 45 cents to $946.55 an ounce at 9:05 p.m. local time, halting the longest slide in five months. The spot price dropped 2.2 percent in the previous five sessions.

The Fed plans to slow the pace of Treasury purchases “to promote a smooth transition in markets,” the bank’s Federal Open Market Committee said in the statement. In a unanimous decision, policy makers left the benchmark interest rate between zero and 0.25 percent, and said economic conditions mean the rate will stay “exceptionally low” for an “extended period.”

Gold increased to $947.25 in the London afternoon “fixing,” the price used by some mining companies to sell their output, from $943.50 in the morning fixing. Gold has dropped as much as 3.2 percent in London since reaching a two- month high of $971.68 an ounce on Aug. 6. The price climbed to a record $1,032.70 in March 2008.

ETF Investments

Investment in the SPDR Gold Trust, the biggest exchange- traded fund backed by bullion, fell for a third day, sliding 3.06 metric tons to 1,065.49 tons as of yesterday, data on the company’s Web site show. The fund reached a record 1,134.03 tons on June 1.

Silver futures for September delivery gained 24 cents, or 1.7 percent, to $14.585 an ounce in New York.

Platinum futures for October delivery fell 70 cents to $1,244.40 an ounce, and palladium futures for September delivery dropped $1.80, or 0.7 percent, to $273.35 an ounce in New York.