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Gold gains as dollar falls on reduced demand for US assets - extended

Gold climbed to a two-week high in New York as the prospect of a weaker dollar spurred demand for the metal as an alternative investment.

Gold generally moves in the opposite direction of the dollar, which weakened against the euro and the yen after a report showed foreigners reduced purchases of US securities in November. Gold gained 23% last year as the dollar fell 7% against a basket of six major currencies. „The bounce in the currencies against the dollar is giving gold a boost,” said Marty McNeill, a trader at R.F. Lafferty Inc. in New York. Gold futures for February delivery climbed $7.40, or 1.2%, to $633.30 an ounce on the Comex division of the New York Mercantile Exchange, the highest close since January 2. Prices earlier fell as much as 0.9%. A futures contract is an obligation to buy or sell a commodity at a set price for delivery by a specific date. Foreigners bought a net $68.4 billion of US securities in November, after a net purchase of $85.3 billion in October, government data showed.

The median forecast in a Bloomberg News survey was for net purchases of $75 billion. „The dollar was weaker on the day, and that's certainly a supportive factor for the gold,” said David Meger, a trader at Alaron Trading Corp. in Chicago. Speculation that China will let its currency appreciate at a faster rate to help narrow its trade surplus helped boost gold prices, some analysts said. The International Monetary Fund on January 15 suggested China should use its currency gains to help balance the world's lopsided trade. The nation's commerce ministry this week said a stronger yuan hasn't hurt exports, and that will assist in preventing the trade surplus from growing. „Even the rumor is supporting gold,” Meger of Alaron said. „The correlation would be weakness in the dollar and strength in gold.”

Gold gained for the second day in Asia as a rise in oil prices spurred buying from investment funds amid inflationary pressures. Some investors buy gold to hedge against an erosion in the value of other assets in times of inflation. Crude oil prices rose for a second day in New York, rebounding from a 19-month low, amid signs that cold weather in the US Northeast may boost heating demand. „Buying interest is stronger at the moment, especially from the funds,” Ellison Chu, manager of precious metals at Standard Bank Asia Ltd., said by phone from Hong Kong. Investors are „just using oil as an excuse to push gold prices higher.”

Gold for immediate delivery rose as much as $1.80, or 0.3 percent, to $633.60 an ounce. It traded at $632.80 at 12:39 p.m. Singapore time. Crude oil for gold jumped to a record $850 in January 1980 after the 1979 Iranian revolution cut oil exports, driving inflation to 12% in the US Charts some traders use to predict price moves also indicate gold may be poised for further gains after it rose past the so-called resistance point of $628 yesterday following two failed attempts earlier this week, said Chu. It may rise to $645 in the near term, he said, without specifying. Prices of securities tend to rise further should they breach resistance or points where sell orders cluster. (Bloomberg)