Gold Gains on Speculation Dollar Will Fall; Silver Prices Climb

Aug. 4 (Bloomberg) -- Gold rose to the highest in eight weeks on speculation that the dollar will weaken after touching a 10-month low yesterday, boosting demand for alternative investments. Silver climbed to a seven-week high.

Gold climbed after the dollar slid yesterday to the lowest since Sept. 29 against a basket of six currencies, and following a report that gold-coin output by the U.K.’s Royal Mint soared 86 percent in the first half. The dollar was little changed against the euro as a report showed pending U.S. home sales rose more in June than forecast, curbing demand for haven assets.

“The stage is set for a move higher in gold prices, with price action holding steady above $950 support,” said Ralph Preston, a Heritage West Futures Inc. analyst in San Diego. “All gold bulls need now is some more follow through in yesterday’s dollar deterioration for gold to be pushing the psychological $1,000 button.”

Gold futures for December delivery rose $10.90, or 1.1 percent, to $969.70 an ounce on the New York Mercantile Exchange’s Comex division. Earlier, the price reached $972.70, the highest for a most-active contract since June 5.

Bullion for immediate delivery in London advanced $10.15, or 1.1 percent, to $966.95 an ounce after earlier touching $970.47, the highest since June 5.

As demand surged for bullion to diversify investments, the Royal Mint’s second-quarter gold-coin output doubled to 16,910 ounces from a year earlier, according to data obtained by Bloomberg News under a Freedom of Information Act request. First-half production jumped to 45,406 ounces, the figures show.

Buying Interest Remains

“There’s still interest in gold,” said Stephen Briggs, an analyst at RBS Global Banking and Markets in London. “This whole sector will capture people who don’t have access to the futures market.”

Investors should “remain cautious on pronouncements of guaranteed breakouts in gold being imminent,” Jon Nadler, a Kitco Inc. senior analyst in Montreal, said today in a note. “They do not take into account a few little basics that make up this market, basics such as scrap flows, fabrication demand.”

Gold “scrap supply has slowed sharply since the end of the first quarter,” John Reade, UBS AG’s head metals strategist in London, said today in a report. “Certain gold markets are now greatly de-stocked,” he said. “We do expect gold jewelry buyers to return to the market at the end of the Northern Hemisphere summer.”

The metal climbed to $960.50 an ounce in the London afternoon “fixing,” the price used by some mining companies to sell their output, from $953.50 in the morning fixing. The London spot price, which reached a record $1,032.70 in March 2008, has gained in each of the past three weeks.

Prices Under Pressure

“If gold does not continue to find support from the weaker dollar and speculative buying, prices might come under pressure,” Natalya Naqvi, a Barclays Capital analyst, said in a report today. “However, we do expect jewelry demand emerging on price dips to provide support.”

Gold is poised for a “big breakout” by the end of September, Donald W. Doyle, the chief executive officer of Blanchard & Co., a retail coin and bullion dealer in New Orleans, said today in a statement. He said the price may top the record $1,033.90 for New York futures reached in March 2008.

The metal advanced 3.1 percent last month in New York as the U.S. Dollar Index, the six-currency basket that includes the euro, yen and U.K. pound, slid 2.2 percent. Gold typically gains when the greenback slips.

By closing above $960, gold has broken past a point where sellers clustered earlier and may rise to as much as $981 before running up against another spate of sales, brokerage firm GoldCore Ltd. in Dublin said today in a note.

Silver for September delivery climbed 44.3 cents, or 3.1 percent, to $14.695 an ounce in New York, after earlier touching $14.765, the highest for a most-active contract since June 15.