Gold, Silver Futures Advance as Dollar Weakens Against Euro
By Pham-Duy Nguyen
July 18 (Bloomberg) -- Gold in New York rose to the highest in six weeks after a decline in the value of the dollar boosted the appeal of the precious metals as alternative investments.
Gold generally moves in tandem with the euro, which gained after the Federal Reserve tempered its forecasts for U.S. economic growth. Gold is up 5.6 percent this year while the euro has climbed 4.6 percent against the dollar.
``The dollar is still weak, and that helps gold,'' said Walter Otstott, senior broker at Dallas Commodity Co. in Dallas.
Gold futures for August delivery rose $7.80, or 1.2 percent, to $673.70 an ounce on the Comex division of the New York Mercantile Exchange, the highest closing price for a most-active contract since June 6.
Silver futures for September delivery rose 27.2 cents, or 2.1 percent, to $13.29 an ounce, the biggest gain in two weeks. The metal is up 2.7 percent this year.
Five of the past six bear markets for the dollar have resulted in a higher gold price. The euro has had five straight weekly gains against the dollar and reached $1.3833 today, the highest since debuting in 1999, partly on speculation that interest rates in Europe will rise faster than in the U.S.
Fed Chairman Ben S. Bernanke told Congress economic growth will pick up slightly next year and inflation will gradually recede. A Labor Department report showed consumer prices rose 0.2 percent in June, the smallest gain in five months.
``This shows the strength of the economy, but it's not so strong as to tempt the Fed to raise rates,'' Otstott said.
The Fed has kept its overnight lending rate unchanged at 5.25 percent since June 2006. The European Central Bank has raised rates twice this year, boosting its benchmark to 4 percent.
Subprime Defaults
Investor concerns that defaults on U.S. subprime mortgages will widen may spur demand for gold as a haven, analysts said. Bear Stearns Cos. told investors in its two failed hedge funds that they probably won't get any money back after ``unprecedented declines'' in the value of AAA rated securities used to bet on subprime mortgages.
``This is subprime day,'' said William O'Neill, partner at research firm Logic Advisors in Upper Saddle River, New Jersey. ``We're seeing some alternative asset buying in gold.''
Spot gold may climb above $673 an ounce, a price that historical charts show as so-called resistance, ``in light of the news regarding Bear Stearns,'' Dennis Gartman, trader, economist and editor of the Suffolk, Virginia-based Gartman Letter, said in a report.
A futures contract is an obligation to buy or sell a commodity at a set price for delivery by a specific date.
To contact the reporter on this story: Pham-Duy Nguyen in Seattle at pnguyen@bloomberg.net .
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