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Gold prices rise on demand for alternative to slumping dollar

Gold prices in New York climbed to the highest in three weeks as a decline in the value of the dollar boosted the appeal of the metal as an alternative investment.

Gold generally moves in the opposite direction of the dollar, which has dropped against 13 major currencies this year. The metal is up 23% this year, while the dollar is down 10% against the euro. „Weakness in the dollar is clearly driving this gold market higher,” said Carlos Perez-Santalla, president of Hudson River Futures in New York. Gold futures for February delivery rose $6.60, or 1.1%, to $636.90 an ounce on the Comex division of the New York Mercantile Exchange, the highest close since December 7.
The metal is up 2.3% this week and has gained for four sessions in a row. A futures contract is an obligation to buy or sell a commodity at a set price for delivery by a specific date. Gold has gained each year since 2001, moving in tandem with the euro from 2002 to 2004. Last year, the metal rose 18%, even as the dollar rallied 14% against the euro.

„The driving force behind gold's long bull market is that of central bank diversification away from the huge dominance of dollar-denominated assets toward other reservable assets,” said Dennis Gartman, trader, economist and editor of the Suffolk, Virginia-based Gartman Letter. The United Arab Emirates central bank on December 24 said it will convert some of its reserves of US assets into the euro. The country is among petroleum exporters, including Iran, Venezuela and Indonesia, that may shift reserves into euros or price oil in the 12-nation currency.
Sales of gold by central banks fell 31% in the third quarter to 59 metric tons from a year ago, according to the World Gold Council. European Central Bank members this year failed to meet the 500 ton quota for gold sales under the second so-called Central Bank Gold Agreement. „There's anticipation of higher prices to come,” said Perez-Santalla Hudson River Futures. „I'm expecting a weaker dollar and higher gold.” (Bloomberg)