Weak dollar spurs yellow metal on LME

Gold climbed in London as a decline in the dollar spurred demand for the precious metal as an alternative asset.

Gold rose 23 per cent last year as a weakening dollar encouraged investors to build their bullion holdings. Investment demand for gold exchange-traded funds tracked by the World Gold Council has increased 1 per cent this year to 18.3 million ounces on signs of buying by jewellers, the biggest users of the metal.

"Jewelry demand doesn't drive the price higher but it does encourage investors when they are buying to know they are in good company,'' said John Reade, head of metals strategy at UBS in London.

Gold for immediate delivery gained $4.25, or 0.6 per cent, to $665.35 an ounce at 10:12 am in London. Prices are up 4.5 per cent this year even as the dollar rose 1.6 per cent against the euro.

"While US dollar weakness has not been a driver of gold during the recovery in the past month, any sell-off in the greenback would likely be a trigger to take gold higher,'' Reade said in an e-mailed report today. The index of the dollar against six currencies including the euro and yen is showing a "strong sell signal'' for the US currency, a trigger for gold buying.

Silver rose 11 cents, or 0.8 per cent, to $13.775 an ounce today. Palladium advanced 50 cents to $337.50 an ounce and platinum gained $11.50 to $1,194.50 an ounce.