Gold, Silver Prices Rise on Demand for Dollar Alternative

Nov. 26 (Bloomberg) -- Gold and silver rose on speculation a weaker dollar will boost demand for the precious metals as alternative investments.

The dollar fell to the lowest ever against a weighted basket of six currencies, including the euro and the pound. Gold is up 30 percent this year, while the euro has gained 13 percent against the dollar, and crude oil has surged 60 percent.

``Gold is staring down at a big green light to take it to all-time highs,'' said Matt Zeman, a metals trader at LaSalle Futures Group in Chicago. ``The expectation that the dollar is going to continue to weaken and crude will break $110 is going to drive demand for gold.''

Gold futures for December delivery rose $4.10, or 0.5 percent, to $828.80 an ounce at 1:04 p.m. on the Comex division of the New York Mercantile Exchange. The price gained 4.8 percent last week and reached a 27-year high of $848 on Nov. 7.

Silver futures for December delivery gained 10.5 cents, or 0.7 percent, to $14.84 an ounce. Before today, the metal climbed 14 percent this year.

The dollar fell on speculation more subprime mortgage losses will lead the Federal Reserve to cut interest rates again this year. The U.S. currency touched $1.4967 on Nov. 23, the lowest ever against the euro.

HSBC Holdings Plc, Europe's largest bank, said it will bail out two structured investment vehicles, taking on $45 billion of assets to avoid a fire sale of bond holdings.

Rate Futures

The Fed lowered the overnight lending rate 0.25 percentage point to 4.5 percent on Oct. 31, the second cut this year. Interest-rate futures show a 98 percent chance the Fed will reduce its benchmark rate to 4.25 percent by Dec. 11, compared with an 82 percent chance a month ago.

``Funds were back in the game, findng it a comforting place to park money, while the dollar's tribulations continue,'' Jon Nadler, an analyst at Kitco Minerals & Metals Inc. in Montreal, said in a report. ``Participants appear to be betting on further Fed easing.''

Still, a drop in oil prices today may limit gold's gains. Oil futures traded as low as $96.50 a barrel after hitting a record $99.29 on Nov. 21.

``A little bit of selling in oil is fueling some selling in gold,'' said Nick Ruggiero, a trader at Eagle Futures Inc. in New York.

Gold futures reached a record $873 an ounce in January 1980 after oil costs doubled in year, sparking a surge in the inflation rate.