Gold Futures Rise in N.Y. as Dollar Weakens; Silver Soars 12%

By Pham-Duy Nguyen

Oct. 29 (Bloomberg) -- Gold futures rose in New York as the dollar plunged, boosting the appeal of the precious metal as an alternative investment. Silver soared the most since 1979.

Against a basket of six major currencies, the dollar tumbled as much as 2.8 percent. Before today, gold dropped 12 percent this year, while the dollar gained 13 percent.

``Any dollar weakness is beneficial for gold,'' said Frank Lesh, a trader at FuturePath Trading LLC in Chicago. ``We've had weeks now where everyone wanted to bring money home and put it in cash. Eventually, the dollar heads lower, and that's supportive for gold.''

Gold futures for December delivery rose $13.50, or 1.8 percent, to $754 an ounce on the Comex division of the New York Mercantile Exchange. The metal reached a record $1,033.90 on March 17.

Silver futures for December delivery jumped $1.1015, or 12 percent, to $9.805 an ounce, the most since Dec. 31, 1979. The metal still has dropped 34 percent this year.

Expectations of an interest-rate cut today helped weaken the dollar, analysts said. The Federal Reserve slashed its benchmark rate to 1.5 percent on Oct. 8 from 5.25 percent in September 2007.

The Fed may lower the rate to 1 percent today and signal further cuts, according to economists surveyed by Bloomberg.

``Over time, lower rates and more issuance of bonds and printing of money should all be gold positive and dollar negative,'' said Michael Martin, a trader at R.F. Lafferty Inc. in New York. ``Gold will continue to be bolstered because it's the further creation of money.''

Gold may fall should equities worldwide slide, Lesh of FuturePath said. Stocks in Asia and Europe rallied today after the Dow Jones Industrial Average gained 11 percent yesterday. The U.S. gauge fell as much as 1.1 percent today and gained as much as 1.6 percent.

``As equities rally, it means you don't have to sell your metals to meet margin calls,'' Lesh said. ``If equities are going to see more downside, metals will also go back down.''

To contact the reporter on this story: Pham-Duy Nguyen in Seattle at pnguyen@bloomberg.net.