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

By Nicholas Larkin

Dec. 8 (Bloomberg) -- Gold rose for the first time in four days in London as a weaker dollar and higher oil prices increased its appeal as an alternative investment to the U.S. currency and hedge against inflation. Silver and platinum also gained.

The dollar fell against the euro and pound, while global stock markets rallied, as U.S. President-elect Barack Obama pledged the biggest public works program in about 50 years. Oil rebounded from six days of declines as OPEC said it may make a “significant” output cut.

“The euro is gaining against the dollar and that supports gold,” Gerry Schubert, a director at Fortis in London, said by phone today. It’s “all currency related and because of Obama.”

Gold for immediate delivery climbed as much as $21, or 2.8 percent, to $777.45 an ounce and traded at $769.70 by 12:41 p.m. in London. A close at that price would mark the biggest daily gain in two weeks. February futures were $17.30, or 2.3 percent, higher at $769.50 in electronic trading on the Comex division of the New York Mercantile Exchange.

The metal, which last week dropped in London for the first time since October, climbed to $772.25 in the morning “fixing” in London used by some mining companies to sell production, from $749 at the afternoon fixing on Dec. 5.

Crude oil gained as much as 6.5 percent to $43.47 a barrel and last traded at $43.30 in New York. The U.S. Dollar Index, which tracks the currency against six trading partners, slipped to the lowest in more than a week.

Cues From Dollar

Stocks around the world rose after Obama said he’s planning the biggest public-works program since President Dwight D. Eisenhower created the interstate highway system. Governments worldwide have introduced measures this year to buttress their economies from the worst financial crisis since the Great Depression as more than $31 trillion has been erased from the value of global equities.

“Precious metals, gold in particular, have been taking cues not only from U.S. dollar movements, but also from global equity markets,” Walter de Wet, an analyst at Standard Bank Ltd. in Johannesburg, wrote today in a note.

Hedge-fund managers and other large speculators increased their net-long position in New York gold futures for the third week in the period ended Dec. 2, according to U.S. Commodity Futures Trading Commission data.

Speculative long positions, or bets prices will rise, outnumbered short positions by 84,369 contracts on the Comex division of the New York Mercantile Exchange, the Washington- based commission said in its Commitments of Traders report.

Carmaker Bail Out

Net-long positions rose by 2,497 contracts, or 3 percent, from a week earlier.

Fairfax IS Plc forecast gold will average $900 an ounce next year, compared with an earlier forecast of $550, because of consumer demand, a weaker dollar and higher inflation. Platinum will average $900 an ounce, from an earlier estimate of $1,100.

Among other metals for immediate delivery in London, silver rose 2.5 percent to $9.77 an ounce. Platinum climbed $31.25, or 3.9 percent, to $834.25 an ounce, and palladium was $10.50, or 6.4 percent, higher at $175.

U.S. lawmakers may present details to Congress today on legislation to bail out ailing carmakers after reaching an agreement in principle with the Bush administration. Chief executives of General Motors Corp. and Chrysler LLC testified at hearings last week that they need a combined $14 billion to keep operating through March 31.

Platinum Buying

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

“Platinum is currently benefiting from a good degree of bargain hunting buying, mainly from those with longer-term outlooks,” James Moore, an analyst at TheBullionDesk.com, wrote in a note. “However, with more negative auto data expected and commodities generally under pressure the short-term view is still a little negative.”

Switzerland’s Zuercher Kantonalbank said platinum assets in its exchange-traded fund rose to 108,448 ounces last week, from 105,262 ounces the previous week. Silver holdings increased to 31.024 million ounces, from 30.547 million ounces, while gold and palladium assets were little changed.

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