Gold Advances on Demand for Dollar Alternative; Silver Declines

(Bloomberg) -- Gold advanced in London, ending a four-day selloff, on speculation declines in the value of the dollar will spur investor demand. Silver fell.

Assets in the StreetTracks Gold Trust, the biggest fund backed by gold, are at a record 609.33 metric tons, figures from the World Gold Council show. Gold has climbed 23 percent this year as the dollar declined to a record against the euro and higher crude-oil prices spurred demand for an inflation hedge.

``The dollar and the path of oil prices will continue to support gold prices going forward,'' said Suki Cooper, an analyst at Barclays Capital in London who forecasts higher average gold prices through the first half of next year.

Gold for immediate delivery climbed 59 cents to $784.34 an ounce as of 2:23 p.m. in London. New York gold futures were up 90 cents at $790 an ounce. The UBS Bloomberg Constant Maturity Commodity Index of 18 commodities is up 17 percent this year.

Gains may be limited by increased sales from central banks. The European Central Bank today said it completed the sale of 42 metric tons of gold on Nov. 30. That's almost half the 103 tons disposed by central banks in the past two months, estimates from the World Gold Council show.

``The central bank is a key factor here because there's a lack of demand,'' said Emanuel Georgouras, a precious metals trader at Marex Financial Ltd. in London. ``Everyone is pretty happy to sell the market.''

Gold's 20-day moving average is about $806 and the 100-day is $729. Moving averages point to changes in price trends. If the 20-day moving average breaks below the 100-day moving average, for example, the move suggests prices may fall, and vice versa.

Silver Fixing

The 14-day relative strength index for gold is 46. Readings above 70 indicate a price may be poised to fall, and readings below 30 indicate it may be about to rise.

The 10:30 a.m. gold ``fixing'' price used by some mining companies to sell their production fell $11 to $783.75 an ounce. The midday silver fixing dropped 37 cents to $13.86.

European central banks voluntarily agreed to cap their sales at 500 tons a year from 2004 through Sept. 26, 2009. The ECB sale is part of that agreement, the Frankfurt-based European Central Bank said.

``From our perspective, if gold absorbed this much selling from the ECB and has not broken even more, we are much impressed,'' U.S. economist and trader Dennis Gartman said in the Gartman Letter today. ``But for now, this is bearish news.''

France has sold 20.2 tons in the fourth year of the agreement, followed by disposals from the Netherlands and Sweden, said Jill Leyland, economist at the World Gold Council in London.

Gold Futures

Speculators who trade gold futures in the U.S. need to reduce their holdings to the equivalent of about 10 million ounces, from about 16.5 million ounces now, before gold will be a ``table-banging buy,'' said John Reade, an analyst at UBS AG in London. There is also ``no jewelry demand,'' the biggest use of the metal, he said.

The cost of borrowing gold for 12 months is 0.448 percent, compared with an average of 0.235 percent in the past year, according to data compiled by Bloomberg. Rates reflect expectations about the amount of metal available for borrowing.

Silver for immediate delivery dropped 5 cents, or 0.4 percent, to $13.955.