Gold May Extend Biggest Rally in 3 Months as Dollar Declines

Feb. 2 (Bloomberg) -- Gold may extend its biggest rally in three months as the dollar’s advance stalled, bolstering demand for the metal as an alternative investment.

Gold for immediate delivery was little changed at $1,104.38 an ounce at 9:09 a.m. in Singapore. The metal rallied 2.3 percent yesterday, the most since Nov. 3. The greenback fell from a six-month high against a basket of six currencies yesterday, shedding as much as 0.4 percent.

“The rally is luring some buyers to lock in gains, while some are betting on a further rally given that gold’s past the key $1,085 support level,” said Yu Kyung Kyu, a trader with Eugene Investment & Futures Co. in Seoul. “Should the dollar’s rally stall here, gold has further to rise.”

Bullion, which typically moves inversely to the dollar, declined for a second month in January as the dollar rallied 2 percent against a basket of six major currencies. The metal reached $1,226.56 on Dec. 3, the highest price ever.

President Barack Obama yesterday sent Congress a $3.8 trillion budget that puts an emphasis on job creation, including $100 billion in additional stimulus spending. The deficit in the year starting Oct. 1 is projected at $1.3 trillion.

“Despite the strength of the U.S. dollar, the gold price is holding up relatively well,” Eugen Weinberg, a senior analyst with Commerzbank AG wrote in a note. “Gold should also benefit from the outlook that the next fiscal year’s public household deficit in the U.S. will amount to $1.3 trillion, close to its record level of $1.6 trillion last year.”

Silver decreased 0.1 percent to $16.655 an ounce, platinum fell 0.1 percent to $1,549.25 an ounce and palladium was up 0.2 percent at $432.75 an ounce.