Gold Rises, Erasing Loss, on Speculation Dollar Will Retreat

Nov. 19 (Bloomberg) -- Gold futures rose, erasing an earlier loss, on speculation that the dollar will fall, boosting demand for the precious metal as an alternative investment.

The dollar climbed as much as 0.8 percent against the euro before paring gains. Yesterday, gold rose to a record $1,153.40 an ounce in New York.

“No one has faith in a sustained dollar rally,” said Matt Zeman, a metals trader at LaSalle Futures Group Inc. in Chicago. “Gold just seems resilient in the face of a stronger dollar. This is a big bullish signal. People want gold to go higher.”

Gold futures for December delivery rose 70 cents to $1,141.90 an ounce on the New York Mercantile Exchange’s Comex division. Earlier, the price dropped as much as 1 percent.

In London, bullion for immediate delivery slipped 80 cents to $1,144.70 an ounce at 7:35 p.m. local time.

Gold has gained in 14 of the past 16 sessions in New York and is up 29 percent this year. The dollar has fallen 6.3 percent against the euro.

The dollar’s rebound today probably is temporary, analysts said. The Federal Reserve has kept its benchmark lending rate at zero percent to 0.25 percent for almost a year, to help revive the economy. That has driven the U.S. currency lower as investors switch to higher-yielding assets.

“The dollar is going to be a victim of the carry trade until the Fed starts tightening,” Zeman said.

Third-Quarter Demand

Gold demand climbed 10 percent in the third quarter to 800.3 metric tons from the previous three months, partly on demand for a currency hedge, the World Gold Council said today. Jewelry purchases also rose, the group said. The U.K.’s Royal Mint said its third-quarter output of gold coins quadrupled compared with a year earlier.

Holdings in the SPDR Gold Trust, the biggest exchange- traded fund backed by bullion, rose 3.66 tons to 1,117.49 tons yesterday, the first gain since Nov. 9. Investments in gold ETFs surged 68 percent in the first nine months of 2009, the gold council said yesterday.

India, Sri Lanka and Mauritius have been buying gold to diversify reserves.

“Any pullback in prices and we’ll see demand come right back,” said Frank McGhee, the head dealer at Integrated Brokerage Services LLC in Chicago. “It’s an asset reallocation into gold. The central banks don’t trust each other’s currencies.”

Gold’s surge to a record yesterday held the metal’s 14-day relative-strength index above 70, a signal that prices may fall.

Among other precious metals traded in New York, silver futures for December delivery rose 4 cents, or 0.2 percent, to $18.455 an ounce. January platinum dropped $8.10, or 0.6 percent, to $1,443.90 an ounce. December palladium slid $4.25, or 1.1 percent, to $369.90 an ounce.