Gold Rises a Second Day in London as Dollar Falls, Oil Gains

By Nicholas Larkin

Nov. 21 (Bloomberg) -- Gold rose in London, heading for a third weekly gain, as the dollar weakened against the euro and oil advanced, increasing bullion's appeal as an alternative investment and hedge against inflation.

The U.S. currency may weaken 16 percent against the euro in the next 12 months as oil prices gain, Barclays Capital said. Oil rose today from close to the lowest since May 2005 on speculation governments will increase efforts to revive economic growth.

Bullion is ``following the stronger euro,'' Gerry Schubert, a director at Fortis in London, said by phone. Higher oil prices ``are having a positive effect,'' he said.

Gold for immediate delivery gained $13.90, or 1.9 percent, to $758.96 an ounce as of 11:01 a.m. in London. December futures were $9.90, or 1.3 percent, higher at $758.60 in electronic trading on the Comex division of the New York Mercantile Exchange.

The metal rose to $758.50 in the morning ``fixing'' in London used by some mining companies to sell production, from $738 at the previous afternoon fixing. Gold, heading for a 2.3 percent gain this week, has slipped 27 percent since reaching a record $1,032.70 an ounce in March.

The dollar dropped for the first time in four days against the euro and pound. Bullion generally moves in the opposite direction to the U.S. currency. Crude oil rose as much as 2.5 percent to $50.64 and last traded at $50.18.

Gold demand increased 18 percent to 1,133.4 tons in the third quarter from a year earlier, as lower prices encouraged purchases by jewelers and as investors sought a haven, according to the World Gold Council. Declining production this year and next adds to the metal's attractiveness, said Evy Hambro, who runs BlackRock Investment Management's $5 billion World Mining Fund.

`Wonderful Outlook'

``Looking at gold today, it's just a wonderful, wonderful outlook,'' Hambro said in an interview in London. ``Demand has been very strong'' and production ``is going to be down probably 3 percent this year and probably 5 percent next year.''

Among other metals for immediate delivery in London, silver added 25.75 cents, or 2.9 percent, to $9.2250 an ounce. Platinum rose $24.25, or 3.1 percent, to $801.75 an ounce and palladium was $4.25, or 2.4 percent higher, at $184.50 an ounce.

Platinum has slumped 47 percent this year as sales at automakers, the biggest users of the metal, plummeted amid rising unemployment and tighter consumer lending. Honda Motor Co., the only major automaker to expand North American auto output so far this year, is trimming production plans at U.S. plants by 18,000 more vehicles as sales decline.

`Equities Rebound'

``A rebound in U.S. equities could support platinum and palladium in particular,'' Walter de Wet, an analyst at Standard Bank Ltd. in Johannesburg, wrote in a note today. ``An equities rebound could be spurred by prospects of a bailout plan for U.S. carmakers.''

Congress is trying to reach a compromise on giving U.S. automakers $25 billion they say they need to survive the next year, either by speeding up the use of funds already approved to develop more fuel-saving technologies and models or providing a new source of funds.

Automakers account for more than half of global platinum consumption, according to estimates by Johnson Matthey Plc, a London-based metals refiner, trader and researcher. The figures take recycling into account.

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