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Gold climbs to highest in almost three weeks as dollar declines

Gold prices in New York climbed to the highest in almost three weeks as a declining dollar spurred demand for the metal as an alternative investment.

Gold generally moves in the opposite direction of the dollar, which fell against the euro and tumbled to the lowest since 1992 against the pound. Gold gained 23% last year as the dollar fell 7% against a basket of six major currencies. „Dollar weakness is driving up the market,” said Nick Ruggiero, a trader at Eagle Futures Inc. in New York. „You'll see some more buying coming in. For long-term bulls, gold is in an upward trend.” Gold futures for February delivery rose $9.90, or 1.6%, to $644 an ounce at 10:06 a.m. on the Comex division of the New York Mercantile Exchange. Prices earlier reached $644.80, the highest since January 3. A futures contract is an obligation to buy or sell a commodity at a set price for delivery by a specific date.

The dollar weakened on speculation the UK and Europe will raise interest rates faster than the US Futures trading shows investors expect the Bank of England to lift rates another quarter point by March, after setting the rate at 5.25% on January 11. Investors expect the European Central Bank to raise rates to 4% by June, up from the last rate increase of 3.5% in December. The Federal Reserve has held rates unchanged at 5.25% since June. „Gold will break through and respond to a weaker dollar,” said Adrian Day, president of Adrian Day Asset Management in Annapolis, Maryland.

„With the propensity of major foreign economies to raise interest rates growing, while there is little threat of higher rates in the US for the time being, the dollar will decline and gold respond.” Investors should be cautious about purchasing gold at current levels, said Matt McKinney, a commodity broker at Infinity Brokerage Services in Chicago. „In the past two months, we've seen lower highs and lower lows and that means gold is trending lower,” said McKinney. „What I'm recommending to my customers is to take their long positions and hold on to their short positions. For gold to go up $15 from here, it's going to be difficult.” (Bloomberg)