Gold Gains Most in a Week in London on Stocks, Weaker Dollar

By Nicholas Larkin

Jan. 16 (Bloomberg) -- Gold rose the most in a week in London as global stocks gained and the dollar weakened against the euro, increasing the metal’s appeal as an alternative investment.

Equities advanced after the U.S. government announced more plans to prop up the country’s ailing banking system and speculation grew that China will pass another stimulus package. European Central Bank President Jean-Claude Trichet yesterday indicated policy makers may leave borrowing costs unchanged in February after cutting rates to 2 percent, matching a record low.

Stock-market gains “have continued this morning,” which “reduces the need for investors to sell precious metals to cover lost assets,” Peter Fertig, a consultant for Dresdner Kleinwort, said by phone from Hainburg in Germany. Trichet’s comments support gold because another rate cut in February “would weigh on the euro,” he said.

Gold for immediate delivery climbed a second day, rising as much as $13.84, or 1.7 percent, to $831.64 an ounce and traded at $826.96 an ounce by 12:37 p.m. in London. February futures added $18.90, or 2.3 percent, to $826.20 in electronic trading on the Comex division of the New York Mercantile Exchange.

Still, bullion is heading for a 3.2 percent weekly loss in London as the dollar closes in on a 1.5 percent gain against the euro. The metal typically moves in the opposite direction to the U.S. currency. Gold rose to $824.25 an ounce in the morning “fixing” in London, used by some mining companies to sell production, from $810 at the afternoon fixing yesterday.

The dollar slipped as much as 1.5 percent against the euro today, while the MSCI World Index rallied 1.8 percent to 868.32.

Borrowing Costs

Policy makers from the U.S. to China have reduced borrowing costs aggressively in recent months to stimulate growth as the global recession worsens. Low real interest rates are “the most bullish environment for gold, as history would suggest this environment helped drive previous gold rallies,” Goldman Sachs Group Inc. said in a note today.

Reports later today will probably show core U.S. consumer prices, which exclude food and energy, rose 0.1 percent last month, while consumer confidence and industrial production weakened. The cost of living including food and energy likely fell 0.9 percent.

“Declining industrial production and sentiment has lately been supportive for gold,” as haven-buying increases, Fertig said. A slight increase in core prices “would not do too much harm for gold,” he said.

Gold in the SPDR Gold Trust, the largest exchange-traded fund backed by bullion, expanded by 0.6 percent to a record 795.25 tons, the company’s Web site shows. Investment in Zuercher Kantonalbank’s gold ETF also rose to a record last week.

Among other metals for immediate delivery in London, silver added 1.6 percent to $10.78 an ounce. Platinum gained $21, or 2.3 percent, to $946 an ounce, and palladium was 2.2 percent higher at $183.50 an ounce.

Silver held in Barclays Plc’s iShares Silver Trust, the biggest exchange-traded fund backed by the metal, rose by almost 80 metric tons to a record 7,143.3 tons on Jan. 14.

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