Gold Rises Most in Three Weeks as Dollar’s Drop Spurs Demand

Oct. 29 (Bloomberg) -- Gold rose the most in three weeks as a sliding dollar increased the metal’s appeal as an alternative investment.

The greenback tumbled for the first time in five sessions against the euro after a report showed the U.S. economy, the world’s biggest, expanded in the third quarter for the first time since June 2008, stoking demand for higher-yielding assets. Before today, gold futures dropped 3.2 percent since Oct. 21 after reaching a record $1,072 an ounce a week earlier.

“Gold is in play,” said Frank Lesh, a trader at FuturePath Trading LLC in Chicago. “The dollar is off because risk is back in favor. Risk appetite is equated with inflation, and you buy gold to fight inflation.”

Gold futures for December delivery rose $16.60, or 1.6 percent, to $1,047.10 an ounce on the New York Mercantile Exchange’s Comex division, the biggest gain for a most-active contract since Oct. 6.

Earlier, the metal touched $1,026.90, matching the lowest price since Oct. 6. The decline in the previous five sessions marked the longest slump since March.

“At this level, some people consider gold cheap,” said Bernard Sin, the head of currency and metals trading at bullion refiner MKS Finance SA in Geneva. “The dollar will continue to be the main driver.”

The metal has gained 18 percent this year, heading for a ninth straight annual increase, while the dollar has declined 5.8 percent against the euro.

‘Chasing Assets’

The U.S. economy expanded at a 3.5 percent annual pace from July through September after shrinking in the previous four quarters. That beat the median estimate of 3.2 percent forecast by 79 economists in a Bloomberg News survey.

“Economic strength can lead to inflation with everybody chasing assets,” Lesh of FuturePath said. “That is supportive for the gold market.”

The Federal Reserve has kept its benchmark interest rate at zero to .25 percent since December as President Barack Obama increased the nation’s marketable debt to a record $7.01 trillion to revive growth.

Investor Paul Tudor Jones has recommended buying gold now to hedge against future inflation.

“I have never been a gold bug,” Jones said in an Oct. 15 letter to investors. “It is just an asset that, like everything else in life, has its time and place. And now is that time.”

Jones’s Greenwich, Connecticut-based Tudor Investment Corp. manages about $11.6 billion. The Tudor BVI hedge fund gained almost 15 percent in the nine months ended Sept. 30, according to the letter.

‘Appears Cheap’

“Gold appears to be cheap,” Jones said. “Gold’s value should increase as its scarcity relative to printed currencies increases.”

Barrick Gold Corp., the world’s largest gold producer, plans to eliminate the rest of its fixed-price forward-sales contracts within 12 months. The company said last month it would end the hedges, betting that the metal’s rally will continue.

Silver futures for December delivery gained 41.5 cents, or 2.6 percent, to $16.655 an ounce on the Comex. Platinum for January delivery rose $31.30, or 2.4 percent, to $1,338.20 an ounce on the Nymex, and palladium for December climbed $10.90, or 3.4 percent, to $327.50 an ounce.