Gold advances as investors seek dollar alternative

The U.S. Dollar Index slid as much as 0.5 percent to a 14- month low. Hedge funds and other large speculators hold their most-bullish position ever in futures, helping to propel gold 21 percent higher this year as a weaker dollar and rising government debt spur concern that inflation may accelerate. Gold futures touched an all-time high of US$1,072 an ounce on Oct. 14.

“The dollar is weaker against other currencies,” Peter Fertig, the owner of Quantitative Commodity Research Ltd. in Hainburg, Germany, said Tuesday by phone.

December gold futures rose US$7.50, or 0.7 percent, to US$1,065.60 an ounce on the New York Mercantile Exchange's Comex division by 6:50 a.m. local time. Immediate-delivery bullion added 0.1 percent to US$1,065.15 in London.

The metal climbed to US$1,064 an ounce in the morning “fixing” in London, used by some mining companies to sell production, from US$1,050.50 at Monday's afternoon fixing. Spot prices are heading for a ninth consecutive annual increase, the best performance since at least 1948.

Gold typically moves inversely to the dollar, which has slipped 7.5 percent against a basket of six currencies this year. Oil futures, used by some investors as an inflation guide, climbed above US$80 a barrel to a one-year high in New York. They were last down 0.5 percent at US$79.23.

“There are long positions building up,” said Darren Heathcote, head of trading at Investec Bank Ltd. in Sydney.

So-called net-long positions, or bets prices will rise, increased 6 percent to 253,955 contracts in the week ended Oct. 13, according to data from the Commodity Futures Trading Commission.

Hedge-fund manager David Einhorn, who runs New York-based Greenlight Capital Inc., said he's buying gold to bet against the dollar and inflation. Buying bullion is better than investing in the metal through exchange-traded funds, he said.

“Gold should do very well if there is a sovereign debt default or a currency crisis,” Einhorn said Monday at a conference in New York.

Gold holdings in the SPDR Gold Trust, the biggest exchange- traded fund backed by bullion, were unchanged for an eighth day at 1,109.31 metric tons Monday, according to the company's Web site. The fund's holdings reached an all-time high of 1,134 tons on June 1.

“Physical demand will remain relatively weak, with post- Diwali demand from India subdued at these prices,” Andrey Kryuchenkov, an analyst at VTB Capital in London, said in a report.

The recent rally to a record may prompt some investors to make sales, according to Commerzbank AG.

“While many speculators had rushed to jump onto the bandwagon, an expanding minority of short-term-oriented investors is betting on falling gold prices,” senior analyst Eugen Weinberg wrote in a note.

Among other precious metals for immediate delivery in London, silver lost 0.5 percent to US$17.745 an ounce. Platinum rose as much as 1 percent to US$1,371 an ounce, the highest price since September 2008, and last traded at US$1,366.

Palladium gained as much as 1.1 percent to US$337.25 an ounce, the highest price since August last year, and was last at US$335. It's the best-performing precious metal this year, adding 79 percent.

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