Falling dollar spurs gold to 6-mth high

Gold climbed to a six-month high in London as the dollar extended declines against the euro, spurring demand for the precious metal as an alternative asset.

Investment demand for gold in exchange-traded funds, or ETFs, tracked by the World Gold Council has increased 2.1 per cent this year to 18.5 million ounces. The gains accelerated this week as the dollar fell against the euro to the lowest since January 4.

"We feel far more confident with the current market situation than a year ago when there was a lot of speculative demand,'' said Markus Bachmann, manager of the $280 million Craton Capital Precious Metals Fund in Johannesburg. "This is very long-term money'' going into gold now, he said.

Gold for immediate delivery gained $4.30, or 0.7 per cent, to $668.55 an ounce at 11:13 am in London. Earlier, prices climbed to $670.65, the highest since July 17.

Gains in bullion are encouraging investors to buy gold equities, with the American Stock Exchange Gold Bugs Index "catching a slightly more aggressive bid'', said MacNeil Curry, technical strategist at Barclays Capital in London.

"If you look across the precious metals asset class, price action consistently is giving you a bullish long-term theme regardless of the specific metal,'' Curry said.

Gold is being supported by investor demand for a haven because of increased tensions in the Middle East and South Korea, said Bernard Sin, chief trader at MKS Finance in Geneva.

"In Iran, in South Korea, in Lebanon, it is basically geopolitically bullish for gold.'' Jewellers, the biggest users of gold, are also buying bullion before China's Lunar New Year holiday next week, he said.

If gold futures in New York open above $670, prices may climb today to $677, the highest since May, Sin said. A rally to last year's 26-year high of $730.40 can be expected in the last six months this year, Curry of Barclays said.

Silver rose 10 cents, or 0.7 per cent, to $13.975 an ounce today. Palladium advanced $2 to $344 an ounce and platinum gained $19.50 to $1,216.50 an ounce.

China, the world's fourth-biggest gold producer, boosted its estimate of unmined reserves of the precious metal by 700 tonne, the National Development and Reform Commission said on its website.

The country plans to increase gold output 8.3 per cent this year to 260 tonne from last year's 240 tonne, the nation's top economic planning agency said. The commission didn't give a figure for existing reserves of unmined gold in the statement.

China is boosting exploration for minerals, including gold and copper, to meet rising demand from the world's fourth-largest economy, and lessen its dependence on imports.

The country has about 4,000 tonne of unmined gold, according to Chen Yuan, vice-resident with Silver Corp, which develops precious and base metals deposits.