Gold climbed to an almost seven-week high in New York on speculation that the Federal Reserve’s pledge to keep interest rates low will drive the dollar lower and boost demand for precious metals as an alternative asset.

Futures rose 2.1 percent yesterday after the Fed said its benchmark interest rate will stay low until at least late 2014. Low rates mean gold is more competitive against assets that pay dividends or interest. The dollar dropped as much as 0.5 percent against the euro today. Holdings of gold in exchange-traded funds jumped 0.4 percent yesterday and U.S. The U.S. Mint’s January gold coin sales are the most in a year.

“The Fed’s language was clearly dollar bearish,” said David Jollie, an analyst at Mitsui & Co. Precious Metals Inc. in London. “Most of the driving forces for buying gold are still there.”

Gold for April delivery jumped 1 percent to $1,720.30 an ounce at 7:31 a.m. on the Comex in New York after climbing to $1,723.50, the highest price for a most-active contract since Dec. 9. The metal has gained 9.8 percent this year and the dollar is down 1.6 percent against the euro.

Prices may “test” $1,800 an ounce next week, said Ong Yi Ling, an investment analyst at Phillip Futures Pte in Singapore.

Nine of 17 Fed officials expect borrowing costs will remain below 1 percent at the end of 2014, with six officials expecting zero rates to remain into 2015. Gold has almost doubled since March 2009 when the Fed started to use “extended period” language.

Holdings Rise

“Since the Fed first talked about an extended period of low rates, we have seen the euro situation worsen and downgrades of sovereign debt and those are part of the reason why we’ve seen gold go higher,” Jollie said. Gold’s high this year will be $2,075 an ounce, he forecast, according to the London Bullion Market Association’s survey for 2012.

Holdings in bullion-backed exchange-traded products rose to 2,358.022 metric tons yesterday, data compiled by Bloomberg show. The record is 2,392.976 on Dec. 13. The U.S. Mint sold 114,500 ounces of American Eagle gold coins so far this month. That’s the most since 133,500 ounces in January last year, according to data on the mint’s website. Silver coin sales total 5.5 million ounces this month, already the most since January 2011, the data show.

Silver for March delivery climbed 0.7 percent to $33.345 an ounce on the Comex and earlier traded at $33.595, the highest price since Dec. 2.

To contact the reporters on this story: Claudia Carpenter in London at ccarpenter2@bloomberg.net; Chanyaporn Chanjaroen in Singapore at cchanjaroen@bloomberg.net.

To contact the editor responsible for this story: Claudia Carpenter in London at ccarpenter2@bloomberg.net

Source: http://www.bloomberg.com/news/2012-01-26/gold-rises-to-7-week-high-as-dollar-alternative.html