Weak dollar pushes gold to 11-month high

Gold rose to its highest level in more than 11 months as a weak US dollar underpinned investor demand. Silver was little changed.

Gold generally moves in the opposite direction of the dollar, which dropped to a 27-month low against the euro on April 20 amid speculation the US interest rate advantage over Europe will narrow. Gold rose 1.3 per cent on the same day. The dollar has fallen more than 10 per cent versus the euro in the past year.

"The fundamentals are still supporting prices moving higher because every dip seems to be well supported,'' Jonathan Barratt, managing director of Commodity Broking Services in Sydney, said by phone today. "That creates a good recipe for a good firm market for it to track to $700.''

Gold for immediate delivery rose as much as $2.30, or 0.3 per cent, to $694.25 an ounce, its highest since May 18, and traded at $692.05 at 3:52 pm Sydney time. Gold rose to a 26-year high of $730.40 an ounce on May 12.

Silver for immediate delivery fell 3 cents, or 0.3 per cent, to $13.91 an ounce at 3:53 pm in Sydney.

"We continue to expect the gold price to hit new highs over the coming year as the US dollar faces ongoing losses against the euro,'' analysts from Deutsche Bank said in a weekly commodities report on April 20.

Deutsche Bank has forecast the dollar to drop to a record $1.40 versus the euro this year which "would imply the gold price rising to over $730 an ounce over the coming year'', the analysts said.

The dollar traded at $1.3581 a euro at 3:55 pm in Sydney from $1.3589 in New York on April 20. The US currency reached a low of $1.3637 on April 20, the weakest level since December 31, 2004.

The all-time low of $1.3666 was reached on December 30, 2004.