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Gold Gains in London, Buoyed by Costlier Oil, Weaker Dollar

By Rachel Graham

April 10 (Bloomberg) -- Gold rose for a second day in London as record oil prices and a weaker dollar spurred investors to buy the metal as a hedge against inflation and as an alterative investment.

Oil rose to an all-time high in New York yesterday. The European Central Bank last month raised its forecast for 2008 inflation to about 2.9 percent, which would be the highest annual rate since 1993. The euro rose to a record against the dollar.

``With oil remaining near new record highs, there is likely to be inflation-hedging gold buying,'' Mark O'Byrne, managing director of Dublin-based brokerage Gold and Silver Investments Ltd., said in an e-mail. Gold may rise to $950 an ounce as early as today, he said.

Gold for immediate delivery rose $4.90, or 0.5 percent, to $938.90 an ounce as of 11:01 a.m. in London. The metal has advanced 13 percent this year, compared with a 20 percent gain in the UBS Bloomberg Constant Maturity Commodity Index of 26 raw materials, including gold.

Traders are awaiting interest rate decisions from the ECB and Bank of England. The ECB will probably hold its key lending rate at a six-year high of 4 percent, according to all 68 economists in a Bloomberg News survey. The Bank of England will probably cut its main interest rate for a third time since December, according to 52 of 61 economists surveyed.

``If the ECB did cut rates it would mean they are more worried about the credit crisis than inflation -- and that would be bullish for gold,'' O'Byrne said by phone.

Gold for June delivery rose $4.70, or 0.5 percent, to $942.20 an ounce in electronic trading on the Comex division of the New York Mercantile Exchange.

Gold Production

South Africa, the world's biggest precious metals producer, today said gold production plunged 28 percent in February from a year earlier.

Among other metals for immediate delivery in London, silver rose 22 cents, or 1.2 percent, to $18.415 an ounce. Platinum gained $13, or 0.6 percent, to $2,036 an ounce.

Platinum has risen 33 percent this year as production was curbed in South Africa because of power shortages. The nation accounts for about three-quarters of world supply.

``With supply concerns still ongoing and mine operation still vulnerable to power outages the market will remain underpinned and could easily spike to fresh highs,'' James Moore, an analyst at TheBullionDesk.com, said in a report.

Palladium for immediate delivery gained $1.75, or 0.4 percent, to $458.75 an ounce.

To graph technical gauges for gold: Moving Averages Relative Strength Index Fibonacci Back Test Technical Gauges

To contact the reporter on this story: Rachel Graham in London at [e-mail]

Last Updated: April 10, 2008 06:25 EDT