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Gold futures advance amid concern that dollar will extend drop

Gold futures rose on concern the dollar may decline against the euro for a sixth day, boosting the appeal of the metal as an alternative investment.

The US currency may fall on speculation a report today will show manufacturing failed to grow in December, raising the prospect the Federal Reserve may lower interest rates. A German report today may show unemployment fell last month, backing the case for the European Central Bank to raise borrowing costs. „The market is really looking at the weaker US dollar,” said Jonathan Barratt, managing director of Commodity Broking Services in Sydney. „What they are concerned about is rate rises in Europe and rates coming off in the US” Gold prices generally move in the opposite direction to the dollar.

The precious metal gained 23% last year, while the dollar fell 10% against the euro. Gold for February delivery rose as much as $5.20, or 0.8%, to $643.20 an ounce on the Comex division of the New York Mercantile Exchange. The contract traded at $642.20 at 11:17 a.m. Mumbai time. A futures contract is an obligation to buy or sell a commodity at a set price for delivery by a specific date. The dollar traded at $1.3278 per euro at 11:18 a.m. in Mumbai from $1.3272 in New York late yesterday. It may fall to $1.39 per euro and 112 yen by the end of the first quarter, said Clifford Bennett, chief strategist at FxMax, a Sydney-based currency forecasting company.

The Institute for Supply Management will probably say today that US manufacturing didn't expand last month, after contracting for the first time since April 2003. Its December factory index will show a reading of 50, the dividing line between contraction and expansion, compared with 49.5 in November, according to a Bloomberg News survey of economists. Germany's unemployment dropped to 10.1% in December, the lowest in more than four years, according to the median estimate of 22 economists.

The Nuremberg-based Federal Labor Agency releases the data at 9:55 a.m. local time today. „Weakening dollar and geopolitical tension especially because of Iran will keep gold supported,” said Gnanasekar Thiagarajan, director at Commtrendz Risk Management Services Pvt. Ltd. from Mumbai. Insecurity will increase further in coming years with Iran continuing to develop nuclear capacity in defiance of international sanctions, the Tel Aviv-based Institute for National Security Studies said in its annual yearbook. „The Middle East will change overnight when Iran goes nuclear,” Zvi Shtauber, the institute's director said at press conference yesterday. „Others will follow suit.”

Gold futures prices also rose as jewelers increased purchases to replace inventories, Barratt said. Jewelers in Australia have run down reserves of the precious metal, he said. „Each jeweler has a certain amount of gold on stock and that's called his reserve,” Barratt said. „The ones we've talked to say they've had a good Christmas, they've had to dip into their reserves, and so they are physically buying.” In India, the price of the metal for February declined 0.1% to 9,279 rupees per 10 grams, or 28,857 rupees ($651) an ounce, at 11:16 a.m. on the Multi Commodity Exchange. Gold for immediate delivery fell 45 cents, or 0.1%, to $640.05 an ounce. (Bloomberg)