Gold Rebounds From 11-Month Low in London as the Dollar Weakens

By Marianne Stigset

Sept. 12 (Bloomberg) -- Gold rebounded from an 11-month low in London as the dollar fell against currencies such as the euro, bolstering the appeal of the metal as a hedge against further declines. Platinum and palladium also advanced.

Gold has had a correlation of 0.68 to the euro-dollar exchange rate this year, up from 0.58 last year, Bloomberg data show. A figure of 1 would mean the two move in lockstep. The euro rose to $1.4102, after touching $1.3882 yesterday, the weakest since Sept. 18 last year.

Gold for immediate delivery climbed $8.11, or 1.1 percent, to $754.58 an ounce as of 11:31 a.m. in London. The metal yesterday reached its lowest since October. The 14-day relative strength index, used by some traders to gauge momentum of price movements, has been below 30 since Sept. 9, signaling prices may rebound.

``Gold has tracked the euro back above $750 overnight and with technical indicators suggesting the metal is heavily oversold we could be due a larger end-of-week bounce,'' James Moore, an analyst at TheBullionDesk.com, wrote in a report.

Gold futures for December climbed $12.70, or 1.7 percent, to $758.20 an ounce in electronic trading on the Comex division of the New York Mercantile Exchange.

Gold was further buoyed by a gain in crude oil, which rose from a five-month low as Hurricane Ike headed toward a near- direct hit on Houston, the busiest U.S. refining center. Higher energy costs stoke investor demand for gold as a hedge against inflation.

Freeport-McMoRan Copper & Gold Inc. reported two explosions near its Grasberg copper and gold mine in east Indonesia today, two days after lowering its production estimate for the mine. The Grasberg mining project contains the world's largest single gold reserve, according to the company's Web site.

Morning Fixing

Gold rose to $757.50 an ounce in the morning ``fixing'' in London, used by some mining companies to sell production, from $740.75 at the previous afternoon fixing.

Silver rose 32 cents, or 3 percent, to $10.88 an ounce. Platinum for immediate delivery rose as much as $44.75, or 3.9 percent, to $1,187.75 an ounce, the biggest gain since Aug. 21. Palladium jumped $15, or 6.5 percent, to $245.50 an ounce.

Platinum retreated to a 20-month low and palladium to its lowest since October 2005 yesterday on expectations that flagging car sales will curb demand for the metals used in autocatalysts.

``The bottom does feel close, but we'll probably need to hear some positive news from the auto sector to bring fundamental support,'' John Reade, the head of metals strategy at UBS AG in London, wrote in a report.

To contact the reporter on this story: Marianne Stigset in Oslo at mstigset@bloomberg.net