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Gold advances as alternatives lose appeal
by Bloomberg News

Gold rose for the first day in four sessions on speculation that a weaker US dollar will boost demand for the precious metal as an alternative investment. Silver climbed.

The US Federal Reserve bought $US7.5 billion ($10.7 billion) in government debt, its first purchase of Treasury securities since the early 1960s, to ease credit markets. The US Dollar Index, a six-currency gauge of the greenback's strength, fell. Investment in the SPDR Gold Trust, the biggest exchange-traded fund backed by bullion, has risen 44% this year to a record 1,125 metric tons.

''The big picture is that they're putting more liquidity into the system and that will eventually weaken the dollar and help gold,'' said Frank McGhee, head dealer at Integrated Brokerage Services LLC in Chicago.

Gold futures for June delivery rose $US12, or 1.3%, to $US938 an ounce on the Comex division of the New York Mercantile Exchange. The metal has gained 6.1% this year.

Silver futures for May delivery climbed 8 cents, or 0.6%, to $US13.437 an ounce in New York. The price has risen 19% this year.

The US dollar index, which includes the euro and yen, fell as much as 0.8% before paring losses. The gauge has dropped 5% this month. Gold's gains may be limited should the US dollar's decline stall, said Matt Zeman, a metals trader at LaSalle Futures Group in Chicago.

''Without the (US) dollar cratering, gold doesn't have the catalyst to move higher,'' Zeman said.

Buying back

Traders who sold gold yesterday on speculation that US equities will extend this month's rally were forced to buy back the precious metal after the price rebounded, said Marty McNeill, a trader at R.F. Lafferty Inc. in New York.

''You have to blame short-covering at this point,'' McNeill said. ''Once gold turned positive, all the boys on the floor jumped on the wagon.''

The metal fell 2.8% on Tuesday.

Gold may top a record set last year on a 21% surge in investor demand this year, researcher CPM Group said yesterday in an annual report. Gold's all-time high was $US1,033.90, reached on March 17, 2008.

Investment demand for gold will rise to a record of 52.3 million ounces this year, topping 43.3 million ounces in 2008. Demand for gold to make jewelry will drop 7.1% to 56.5 million ounces as the recession curbs consumer spending, the group said.

''For gold to move materially higher, we probably need to see investment demand strengthen further and remain steady,'' said John Reade, a UBS AG metals strategist in London.


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