Feb. 13 (Bloomberg) -- Gold prices advanced in London as declines in the U.S. dollar spurred demand for the precious metal as an alternative asset.

Gold rose 23 percent last year as a weakening dollar encouraged investors to build their bullion holdings. Investment demand for gold exchange-traded funds tracked by the World Gold Council has increased 1 percent this year to 18.3 million ounces on signs of buying by jewelers, the biggest users of the metal.

``Jewelry demand doesn't drive the price higher but it does encourage investors when they are buying to know they are in good company,'' said John Reade, head of metals strategy at UBS AG in London.

Gold for immediate delivery gained $6.25, or 0.8 percent, to $666.35 an ounce at 12:45 p.m. in London. Prices are up 4.6 percent this year even after the dollar rose 1.4 percent against the euro.

``While U.S. dollar weakness has not been a driver of gold during the recovery in the past month, any sell-off in the green back would likely be a trigger to take gold higher,'' Reade said in an e-mailed report today. The index of the dollar against six currencies including the euro and yen is showing a ``strong sell signal'' for the U.S. currency, a trigger for gold buying.

The dollar weakened to $1.3022 against the euro as of 1:07 p.m. in London today, from $1.2966 in New York yesterday.

`Quite Poor'

``The dollar is looking quite poor at the moment,'' said James Moore, an analyst in Kettering, England, for TheBullionDesk.com. As long as gold stays above $661, traders who follow charts and graphs will probably keep buying gold and may push prices to $676 in the next week, he said.

Gold's rally has been spurred by purchases that grew faster than mining output. Johannesburg-based AngloGold Ashanti Ltd., the world's second-biggest gold producer, today forecast an 8.8 percent decline in production in the three months to March 31. South African output dropped 12 percent in December from a year earlier, the government said yesterday.

``Reduced supply is bullish for the fundamentals of gold itself,'' said Moore.

Silver rose 16 cents, or 1.2 percent, to $13.825 an ounce today. Palladium advanced $1 to $338 an ounce and platinum gained $9.50 to $1,192.50 an ounce.

To contact the reporter on this story: Claudia Carpenter in London at ccarpenter2@bloomberg.net

Last Updated: February 13, 2007 08:13 EST