Gold, Near a Record, May Extend Rally on Dollar and Inflation

By Nicholas Larkin and Kim Kyoungwha

Sept. 17 (Bloomberg) -- Gold, trading about 1 percent below a record, may extend gains in London as a weakening dollar and signs of a recovering global economy spur demand for the metal as an alternative investment and inflation hedge.

The U.S. Dollar Index fell to its lowest level in almost a year before reports that may show Europe’s trade surplus is swelling and the U.S. housing market is improving. U.S. consumer prices rose 0.4 percent in August, beating economists’ forecasts, data showed yesterday. Gold, up for a third day, reached a record $1,032.70 an ounce in London in March 2008.

“With the dollar under pressure and investment demand for equities and commodities increasing, gold will remain buoyant in coming sessions,” James Moore, an analyst at TheBullionDesk.com in London, said in a report. “There is little to stand in the way of last year’s all-time high, particularly with exchange- traded-fund buyers joining the frenzy.”

Immediate-delivery bullion advanced as much as $6.98, or 0.7 percent, to $1,024.28 an ounce, rising for a third day. The metal traded at $1,021.89 by 9:30 a.m. local time. December gold futures were 0.3 percent higher at $1,023.10 an ounce on the New York Mercantile Exchange’s Comex division. Other precious metals gained to the highest prices in a year.

Holdings of bullion in the SPDR Gold Trust, the biggest ETF backed by the metal, increased 7.63 metric tons to 1,086.48 tons yesterday, data on the company’s Web site showed. The fund’s holdings reached a record 1,134.03 tons on June 1.

Weaker Dollar

Gold has climbed 16 percent in London this year, while the dollar index, a six-currency gauge of the currency’s strength, has slipped 6.5 percent. The measure declined as much as 0.3 percent today.

“Yesterday’s higher-than-expected U.S. CPI numbers spurred further investment demand,” said Stefan Graber, an analyst with Credit Suisse Group in Singapore. “The move above $1,000 is being warranted by fundamentals” such as a weak dollar and inflation.

Silver for immediate delivery in London climbed as much as 1.5 percent to $17.6675 an ounce, the highest since August 2008, and was last at $17.56. The metal has rallied 54 percent this year.

An ounce of gold now buys about 58.2 ounces of silver in London, the least since August 2008, according to Bloomberg data. That’s down from a high of 84.4 ounces on Oct. 10, which was the most since March 1995.

Platinum gained as much as 0.5 percent to a one-year high of $1,351.50 an ounce and was last little changed at $1,346.50. Palladium, the best-performing precious metal this year, was 0.3 percent higher at $299 an ounce after reaching a one-year high of $301.

To contact the reporters on this story: Nicholas Larkin in London at nlarkin1@bloomberg.net; Kyoungwha Kim in Singapore at kkim19@bloomberg.net