Nov. 13 (Bloomberg) -- Gold prices climbed to a second weekly gain as the dollar fell against the euro, boosting demand for alternative assets. Silver also rose

The dollar slipped as much as 0.6 percent against the euro. Bullion usually gains when the U.S. currency declines. Gold futures reached a record $1,123.40 an ounce yesterday before dropping 0.7 percent, the most since Oct. 26, as the dollar advanced against a basket of six major currencies.

“The dollar is a measure of risk aversion these days,” said Tom Pawlicki, an MF Global Inc. metals analyst in Chicago. “We still like the long-term prospects of the gold market, even though it is at risk in the short-run.”

Gold futures for December delivery gained $10.10, or 0.9 percent, to $1,116.70 on the New York Mercantile Exchange’s Comex division. The most-active contract rose 1.9 percent for the week, the sixth gain in the past seven weeks.

The dollar is down 6.4 percent against the euro this year. The U.S. Dollar Index, the six-currency basket that includes the euro, yen and U.K. pound, fell as much as 0.6 percent today and touched a 15-month low on Nov. 11.

“There will always be a focus on the dollar,” said Wolfgang Wrzesniok-Rossbach, the head of marketing and sales at Hanau, Germany-based Heraeus Metallhandels GmbH. “There’s still a lot of interest for physical gold. There’s now a tendency to buy on dips.”

Spot Prices Rise

In London, bullion for immediate delivery climbed $12.20, or 1.1 percent, to $1,116 an ounce at 7:18 p.m. local time, for a 1.9 percent weekly gain. Spot gold prices are up 27 percent this year, heading for a ninth annual increase, the longest winning streak since at least 1948.

The metal fell to $1,104 in the London afternoon “fixing,” the price used by some mining companies to sell their output, from $1,107.50 in the morning.

Gold “looks capable of maintaining its recent pace,” Barclays Capital analysts said today in a report.

Inflation expectations are rising, central banks are increasingly looking favorably on the metal and there are signs of improving demand, Barclays said in the report.

Dollar Alternative

“The strength in the gold price is demand-driven, mainly as an alternative to the dollar,” Catherine Gignac, a managing director of mining research at Sandfire Securities Inc. in Toronto, said by e-mail.

Gold may extend gains next week on speculation that investors and central banks will buy the metal as an alternative to the slumping dollar, according to 18 of 19 traders and analysts surveyed by Bloomberg News.

“The Federal Reserve is still focusing on keeping rates overly accommodative,” said Jim Pogoda, an investor in Summit, New Jersey, and a former precious-metals trader for Mitsubishi International Corp. “This should keep the dollar retreating and add fuel to gold’s rally.”

The Fed last week repeated its intent to keep U.S. interest rates near zero percent for “an extended period.”

Gross domestic product in the 16-nation euro region increased 0.4 percent in the third quarter, the first gain since March 2008, the European Union’s statistics office in Luxembourg said today. The return to growth, responding to government stimulus spending, may signal an end to the recession.

“Investors are still looking for an alternative to pile their money in or protect against potential coming inflation,” Heraeus’ Wrzesniok-Rossbach said. “People still believe in the gold story.”

Gold Outlook

Gold will average $1,110 an ounce in 2010, 6 percent more than previously forecast, Bank of America Merrill Lynch said today in a report. Emerging-market central banks and investor purchases will support prices, according to the report.

Silver futures for December delivery gained 11.5 cents, or 0.7 percent, to $17.38 an ounce in New York. Platinum for January delivery surged $25.50, or 1.9 percent, to $1,388.70 an ounce, the sharpest advance in two weeks. Platinum gained 3 percent this week.

December palladium rose $5.85, or 1.7 percent, to $356.75 an ounce, a 7.9 percent advance for the week. Palladium is this year’s best performer among the major precious metals with an 89 percent gain.

“Palladium’s recent strength has many old timers befuddled,” Miguel Perez-Santalla, a sales vice president at Heraeus Precious Metals Management in New York, said in a report. Fundamentals indicate an excess of supplies “and it is believed a drop is sure to come,” he said. “The U.S. dollar will either add to or take away support from these markets.”

Bank of America Merrill Lynch raised its 2010 silver forecast 18 percent to an average of $17.60 an ounce. The bank also increased its palladium estimate 23 percent to an average of $370 an ounce and platinum by 6.5 percent to $1,440 an ounce.

To contact the reporters on this story: Nicholas Larkin in London at nlarkin1@bloomberg.net; Halia Pavliva in New York at hpavliva@bloomberg.net.

Last Updated: November 13, 2009 14:20 EST