Nicholas Larkin & Halia Pavliva / November 16, 2009, 0:19 IST

Gold prices climbed to a second weekly gain as the dollar fell against the euro, boosting demand for alternative assets. Silver also rose. The dollar slipped as much as 0.6 per cent against the euro. Bullion usually gains when the US currency declines. Gold futures reached a record $1,123.40 an ounce yesterday before dropping 0.7 per cent, the most since October 26, as the dollar advanced against a basket of six major currencies.

“The dollar is a measure of risk aversion these days,” said Tom Pawlicki, an MF Global metals analyst in Chicago. “We still like the long-term prospects of the gold market, even though it is at risk in the short-run.” Gold futures for December delivery gained $10.10, or 0.9 per cent, to $1,116.70 on the New York Mercantile Exchange's Comex division. The most-active contract rose 1.9 per cent for the week, the sixth gain in the past seven weeks. The dollar is down 6.4 per cent against the euro this year. The U.S. Dollar Index, the six-currency basket that includes the euro, yen and the pound, fell as much as 0.6 per cent and touched a 15-month low on November 11.

“There will always be a focus on the dollar,” said Wolfgang Wrzesniok-Rossbach, the head of marketing and sales at Hanau, Germany-based Heraeus Metallhandels. “There's a lot of interest for physical gold and a tendency to buy on dips.”

Spot prices rise
In London, bullion for immediate delivery climbed $12.20, or 1.1 per cent, to $1,116 an ounce, for a 1.9 per cent weekly gain. Spot gold prices are up 27 per cent this year, heading for a ninth annual increase, the longest winning streak since at least 1948. The metal fell to $1,104 in the London afternoon “fixing,” the price used by some mining companies to sell their output, from $1,107.50 in the morning. Gold “looks capable of maintaining its recent pace,” Barclays Capital analysts said. Inflation expectations are rising, central banks are increasingly looking favourably on the metal and there are signs of improving demand, Barclays said in the report.

Dollar alternative
“The strength in the gold price is demand-driven, mainly as an alternative to the dollar,” Catherine Gignac, a managing director of mining research at Sandfire Securities in Toronto. Gold may extend gains next week on speculation that investors and central banks will buy the metal as an alternative to the slumping dollar, according to 18 of 19 traders and analysts surveyed by Bloomberg News. “The Federal Reserve is still focusing on keeping rates overly accommodative,” said Jim Pogoda, an investor in Summit, New Jersey, and a former precious-metals trader for Mitsubishi International Corp. “This should keep the dollar retreating and add fuel to gold's rally.” The Fed last week repeated its intent to keep US interest rates near zero per cent for “an extended period.” Gross domestic product in the 16-nation euro region increased 0.4 per cent in the third quarter, the first gain since March 2008, the EU’s statistics office in Luxembourg said.

The return to growth, responding to government stimulus spending, may signal an end to the recession