Gold Rises in London as Higher Oil, Weaker Dollar Boost Demand

By Nicholas Larkin

Nov. 10 (Bloomberg) -- Gold rose for a second day in London as higher crude-oil prices and a weaker dollar boosted demand for the metal as a hedge against inflation.

The dollar fell against the euro and pound and crude oil advanced more than 5 percent on speculation stimulus plans by China and other major economies may help sustain growth and demand for fuel. China yesterday said it will spend $586 billion through 2010 to prop up its economy, the biggest contributor to global growth.

``If the dollar is under selling pressure then commodity currencies should benefit from it,'' Afshin Nabavi, a senior vice president at MKS Finance SA, one of Switzerland's four bullion refiners, said by phone from Geneva. China's spending plan is ``quite a hefty package'' and ``commodities have benefited from it.''

The metal for immediate delivery advanced as much as $17.45, or 2.4 percent, to $754.10 an ounce and traded at $751.35 by 10:48 a.m. in London. December futures gained $16.80 to $751 an ounce in electronic trading on the Comex division of the New York Mercantile Exchange.

Bullion has dropped 27 percent since reaching a record $1,032.70 an ounce in March. The metal rose to $751.75 in the morning ``fixing'' in London used by some mining companies to sell production, from $735.25 at the previous afternoon fixing.

Oil for December delivery climbed $3 to $64.05 a barrel on the New York Mercantile Exchange. The dollar fell 1.4 percent against the euro and 1 percent against the pound. Gold generally moves in the opposite direction of the U.S. currency.

National Currencies

``With government bonds and currencies set to come under increasing pressure in the coming months, possibly sharply so, gold is set to again become the asset of last resort and will likely be used by prudent central banks and governments to back and restore confidence in their national currencies,'' Mark O'Byrne, managing director of brokerage Gold and Silver Investments Ltd. in Dublin, wrote in a note.

Eleven of 32 traders, investors and analysts surveyed from Mumbai to Chicago on Nov. 6 and 7 said gold may rise this week. Ten advised selling the metal and 11 were neutral.

Hedge-fund managers and other large speculators decreased their net-long position in New York gold futures for a sixth week in the period ended Nov. 4, according to U.S. Commodity Futures Trading Commission data.

Speculative long positions, or bets prices will rise, outnumbered short positions by 68,195 contracts on the Comex division, the Washington-based commission said in its Commitments of Traders report. Net-long positions fell by 10,120 contracts, or 13 percent, from a week earlier.

`Looking for Gold'

``Demand for physical gold is very strong worldwide,'' Nabavi said. ``A lot of jewelry people and investors are looking for gold. A lot of safe-haven buyers are looking for gold.''

Gold in the SPDR Gold Trust, the largest exchange-traded fund backed by bullion, held steady at 749.2 metric tons on Nov. 7, according to figures posted on the company's Web site. The fund added 36 tons in October.

Silver climbed 3.1 percent to $10.36 an ounce. The metal has more than halved from an 18-year high in March after hedge funds and speculative investors sold commodities and precious metals to raise cash amid the global economic slowdown.

Silver won't rise above $15 an ounce in at least the next three months as industrial use is curbed by the deepening credit crisis, said Li Yunping, director of finance or the gold and silver division at Henan Yuguang Gold & Lead Group Co., China's biggest producer of silver.

Among other metals for immediate delivery, platinum rose $19, or 2.2 percent, to $873.50, and palladium was $1, or 0.4 percent, higher at $226 an ounce.

To contact the reporter on this story: Nicholas Larkin in London at nlarkin1@bloomberg.net