Gold Advances in New York on Demand for Alternative to Weakening Dollar

Jul 15, 2010 - Gold futures rose on speculation that the dollar will weaken further, boosting demand for the precious metal as an alternative asset.

The dollar slid as much as 1.1 percent against a basket of six major currencies and touched a two-month low against the euro. Gold historically has moved inversely to the dollar. The metal reached a record $1,266.50 an ounce on June 21 and rallied to all-time highs in euros, British sterling and Swiss francs as investors sought a haven during Europe’s fiscal crisis.

“Gold is following the euro higher,” said Frank McGhee, the head dealer at Integrated Brokerage Services LLC in Chicago. “Gold’s historical relationship to the dollar is coming back.”

Gold futures for August delivery increased $1.30, or 0.1 percent, to $1,208.30 on the Comex. The price has gained 10 percent this year.

The euro rose above $1.29 for the first time since May as demand for Spanish government bonds eased concerns that the nation wouldn’t be able to fund its deficit.

Investors who had sold euros and bought dollars and gold as havens during the height of Europe’s debt worries may now be reversing course, analysts said.

‘Love Triangle’

“The love triangle between gold, the dollar, and the euro is playing out,” said Matt Zeman, a metals trader at LaSalle Futures Group in Chicago. “A lot of what you’re seeing is the unwinding of those euro positions. Gold still looks good to hold and won’t slide too much.”

The Federal Reserve Bank of New York’s general economic index and the Philadelphia Fed’s gauge both fell in July to 5.1, reflecting the slowest pace of manufacturing expansion this year. Readings greater than zero signal growth.

The Fed has kept its benchmark interest rate at zero to 0.25 percent since December 2008 to stimulate growth. The European Central Bank’s main rate is 1 percent.

“We remain bullish on gold, although we may soon begin to focus upon gold in dollar terms rather than solely seeing gold in terms of the euro, sterling or even the Swiss franc,” said Dennis Gartman, an economist and the editor of the Suffolk, Virginia-based Gartman Letter.

Silver futures for September delivery rose 7.2 cents, or 0.4 percent, to $18.362 an ounce on the Comex.

Platinum futures for October delivery advanced $13.10, or 0.9 percent, to $1,533.70 an ounce on the New York Mercantile Exchange. Palladium futures for September delivery gained $1.40, or 0.3 percent, to $467.20 an ounce, also on the Nymex.