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1117.20 Gold May Continue largest Rally in Two Months as Dollar Declines

By Kim Kyoungwha

Jan. 5 (Bloomberg) -- Gold, little changed in Asia, may extend its biggest rally in two months as the dollar declines, boosting demand for the precious metal.

The U.S. currency may weaken against a basket of six counterparts after Federal Reserve Governor Elizabeth Duke said “moderate” economic growth is likely to warrant low interest rates for an “extended period.” Gold rallied 24 percent in 2009 as investors hedged against a declining dollar.

“The defining agent of this year’s action will once again be the path that the U.S. dollar eventually takes,” Jon Nadler, senior analyst with Kitco Metals Inc., wrote in a report.

Gold for immediate delivery, which touched a record $1,226.56 an ounce on Dec. 3, was little changed at $1,121.10 an ounce at 10:23 a.m. in Singapore. The metal gained 2.2 percent yesterday, the biggest advance since Nov. 3, as the dollar fell.

Rising optimism that global economic growth will gain momentum in 2010 is pushing up stock and commodity markets, reviving demand for alternative investments at the expense of the dollar. The Dollar index, a six-currency gauge of its value, declined for a third day, falling as much as 0.1 percent.

U.S. manufacturing expanded in December at the fastest pace in more than three years, capping a late-2009 global factory rebound that helped pull the world out of the worst slump since the 1930s. That followed a report that Chinese manufacturing increased the most in five years last month.

“Net long positions of speculative financial investors on the gold market are still very high,” Eugen Weinberg, a senior analyst with Commerzbank AG, wrote in a report, referring to bets prices may gain. “Demand for jewelry appears to be picking up already at the slightly lower prices.”

February-delivery gold in New York rose 0.3 percent to $1,121.60. Among other metals, spot platinum lost 0.4 percent to $1,519 an ounce, silver added 0.1 percent to $17.5925 an ounce and palladium climbed 0.2 percent to $422 an ounce.

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a6gQAD9zShyM