Gold approaches 16-month high

Gold was little changed near a 16- month high in Asia on expectations the Federal Reserve will cut US interest rates, weakening the dollar and boosting the appeal of the precious metal as an alternative investment.

Dollar-denominated gold prices tend to rise when the US currency falls as the metal becomes cheaper for non-US investors. The dollar traded at $1.3798 per euro at 2 p.m. in Tokyo from 1.3802 late in New York yesterday, near a record low of $1.3852 on July 24.

"Fears of US economic weakness have likely revived gold's appeal as a safe-haven investment and inflation hedge,'' Morgan Stanley analysts, led by Hussein Allidina, said in a report. "We continue to believe that rising incomes in Asia will drive gold demand.''

Bullion for immediate delivery was little changed at $702.98 an ounce and Silver for immediate delivery was unchanged at $12.54 an ounce at 1:59 p.m. in Singapore.

In Japan, gold for delivery in August lost 21 yen, or 0.8 per cent, to 2,600 yen a gram ($710 an ounce) on the Tokyo Commodity Exchange. Gold for December delivery was little changed at $712.10 an ounce on the Comex division of the New York Mercantile Exchange at the same time.

Gold has been alternately sold as a commodity and as a means of raising liquidity, while also being bought as a hedge against risk, according to Stephen Briggs, a metals analyst at "The gold rally resulted from a combination of renewed safe-haven buying among professional investors and speculators, reinforced by a substantial improvement in the technical construction on the charts,'' Briggs said in a report yesterday.

Hedge-fund managers and other large speculators increased their bets on rising Comex futures prices in the week ended September 4, US Commodity Futures Trading Commission data showed. Speculative net-long positions, the difference between contracts to buy and sell the metal, rose by 26 per cent, or 19,769 contracts, from a week earlier.

While solid physical demand will be sustained in coming weeks, "the high component of speculation in the recent move suggests that prices may now need to consolidate,'' SocGen's Briggs said.