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Gold prices gained in New York, rises in London - Extended

Gold rose for a third straight day in London, in New York climbed the most this month after a drop in the value of the dollar boosted the appeal of the metal as an alternative investment.

Gold has climbed 21% this year, heading for its sixth annual gain, while the dollar has fallen 10% against the euro. Bullion is the favorite pick for 2007 by Deutsche Bank AG's chief metals economist, Peter Richardson. „You have investors and speculators in the market because of the dollar,” said Wolfgang Wrzesniok-Rossbach, head of marketing and sales at Heraeus Metallhandels GmbH in Hanau, Germany. „Most of the outlooks for gold next year are pretty positive.” Gold for immediate delivery rose 50 cents to $623.45 an ounce at 10:02 a.m. in London, bringing the three-day gain to 1.3%. Prices had dropped the previous two weeks.

Gold generally moves in the opposite direction of the dollar, which on Tuesday fell the most against the euro in two weeks. The metal is up 20% this year, while the dollar has fallen 10% against the euro. „Dollar weakness is supporting gold to some extent,” said Daniel Vaught, a commodity analyst at A.G. Edwards Inc. in St. Louis. „Gold can test resistance at $629 in the short term.” Gold futures for February delivery rose $6.10, or 1%, to $624 at 11:47 a.m. on the Comex division of the New York Mercantile Exchange. A close at that price would mark the biggest percentage increase since November 30. Prices fell 2.3% in the previous three sessions.
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 after business confidence in Germany, Europe's largest economy, unexpectedly surged in December. Gold has gained every year since 2001, moving in tandem with the euro from 2002 to 2004. The metal gained 18% last year, even as the dollar gained 14% against the euro. „A bit of a weaker dollar is helping this rally,” said Frank Lesh, a commodity broker at FuturePath Trading LLC in Chicago. Some investors also bought gold as an inflation hedge after a government report showed prices paid to US producers jumped by the most since 1974. The producer-price index climbed 2% in November from a month earlier, led by higher costs of energy, the Labor Department said.

„There's commodity inflation,” said Vaught of A.G. Edwards. „With the PPI, you're getting closer to the raw-material market. There's inflationary underlying demand from developing countries.” Gold reached a record $873 an ounce in January 1980 after oil costs doubled in a year, sparking a surge in the inflation rate. Gold may gain on demand for a haven against turmoil in financial markets. Stocks in Thailand lost $23 billion of market value on Tuesday after the central bank said international investors must pay a 10% penalty unless they keep funds in the country for one year. The government later reversed the decision.
„The prospect of controls imposed on investors in Thailand „is offering some support to gold,” Vaught said. „A lot of traders automatically think of the currency crisis in the mid-1990s.” A plunge in the Thai baht in 1997 sent the Bangkok SET Index tumbling 72% over three years. „There will be some speculative buying as money leaves the stock markets of Asia and flows into other areas of investment, precious metals being rather dear to the speculative hearts of Asian traders,” said Dennis Gartman, economist and editor of the Suffolk, Virginia-based Gartman Letter. Silver futures for March delivery rose 23.5 cents, or 1.9%, to $12.76 an ounce. Before Tuesday, prices had gained 41% this year. (Bloomberg)