Gold Gains as Dollar Drop Spurs Investor Demand for Hard Assets

Nov. 24 (Bloomberg) -- Gold rose for an eighth consecutive session in New York on speculation that the dollar may fall further and central banks and investors will buy more bullion as an alternative investment.

Futures reached a record $1,174 an ounce yesterday as the U.S. Dollar Index fell the most in two weeks and Russia’s Bank Rossii said it bought more gold in October. The index is down 7.6 percent this year after the Federal Reserve cut its key lending rate to a record low in December and kept it there. Holdings in the SPDR Gold Trust, the biggest exchange-traded fund backed by bullion, rose to the highest level since June.

“When the Fed repeatedly says that the rates will remain low, that means the dollar will weaken and gold will rise,” said Leonard Kaplan, the president of Prospector Asset Management in Evanston, Illinois, and a gold trader for more than three decades. Still, “it’s very possible that it will decline, short term.”

Gold futures for December delivery gained $1.10, or 0.1 percent, to $1,165.80 an ounce on the New York Mercantile Exchange’s Comex division, after earlier rising as much as 0.6 percent. The most-active contract is up 32 percent this year, heading for the best annual performance since 1979. Gold for February delivery gained $1.20 to $1,167.40 an ounce.

After the close of floor trading, the metal added to its gains as comments from the Federal Reserve weakened the dollar and fueled concern that inflation may accelerate.

Fed officials said record-low interest rates might fuel “excessive” speculation in financial markets or an “unanchoring” of stable inflation expectations, according to minutes of their Nov. 3-4 meeting released today.

Rising Demand

In London, gold for immediate delivery gained $3, or 0.3 percent, to $1,169.10 an ounce at 8:31 p.m. local time.

Gold “is likely to find further investment demand in the coming session following the 3.9-ton increase in the SPDR ETF,” James Moore, an analyst at TheBullionDesk.com in London, said in a report. “Gold has found good support around the $1,160 level.”

The dollar index, a six-currency gauge of the greenback’s value, was little changed. The measure touched a 15-month low on Nov. 16.

“The dollar is weak and that is supporting” gold, Miguel Perez-Santalla, a vice president of sales at Heraeus Precious Metals Management in New York, said in a report. “Gold attempted to reach the $1,200 level yesterday and failing, it dropped off, but the market sees these drops as opportunities to buy.”

Central-Bank Buyers

The International Monetary Fund, which set out to sell one- eighth of its gold reserves earlier this year, is trying to complete the process as soon as possible, said Andrew Tweedie, the head of the IMF’s finance department. Earlier this month, India said it bought 200 metric tons from the IMF. Mauritius purchased 2 tons from the lender. Along with Russia’s central bank, Sri Lanka also has been buying gold.

“The investment case for gold has become increasingly compelling,” Dan Smith, an analyst at Standard Chartered Plc, said in a report. The metal will average $1,150 an ounce next year, including $1,300 in the fourth quarter, he said.

“There is definitely accumulation going on, whether by central banks or high-net-worth individuals, so we can see the gold price is going to carry on moving higher, but that doesn’t mean that we’re not going to see consolidation or pullbacks,” David Baker, a managing partner at Baker Steel Capital Managers, said in a Bloomberg Television interview.

Gold Holdings

The rally has pushed London gold’s 14-day relative strength index above the level of 70, which is viewed by some investors and analysts who follow technical charts as a sign that the price may soon fall. Today’s reading was about 80.

Holdings in the SPDR Gold Trust expanded yesterday to 1,121.46 tons, the most since June 29. The fund’s holdings reached a record 1,134.03 tons on June 1.

Also in New York, silver futures for March delivery fell 15.5 cents, or 0.8 percent, to $18.494 an ounce. Platinum for January delivery dropped $23.80, or 1.6 percent, to $1,443.80 an ounce and March palladium slid 1 percent to $370.80 an ounce.