Nov. 2 (Bloomberg) -- Gold climbed to the highest in a week as the dollar declined, boosting the appeal of the precious metal as an alternative asset. Silver also gained.

The dollar fell against the euro, extending this year’s slide to 5.2 percent. Gold, up 19 percent this year, has outperformed U.S. stocks and bonds as the metal heads for a ninth straight annual gain.

“Gold is benefiting from weakness in other assets,” said Frank McGhee, the head dealer at Integrated Brokerage Services LLC in Chicago. “You’re seeing a rotation into gold.”

Gold futures for December delivery jumped $13.60, or 1.3 percent, to $1,054 an ounce on the New York Mercantile Exchange’s Comex division, the highest closing price for a most- active contract since Oct. 23. Earlier, the metal reached $1,063.40, also the highest since Oct. 23.

In London, gold for immediate delivery climbed $10, or 1 percent, to $1,055.40 an ounce at 7:15 p.m. local time.

Traders who follow charts and graphs bought the metal as the spot price exceeded the 21-day moving average of $1,049.65, said Tobias Merath, the head of commodity research at Credit Suisse Group AG in Zurich.

“We could have a strong end of the year, and might even break $1,100” by Dec. 31, Merath said. “The gold rally is founded on three pillars, and the first is dollar weakness.”

Comparative Returns

Bullion also has gained because of lower yields from U.S. government securities and equities, making gold more competitive with assets such as interest-paying bonds, Merath said. He cited “strong investment flows” as the metal’s third support.

Returns on benchmark 10-year U.S. Treasury notes have fallen 5.5 percent this year, according to Merrill Lynch & Co. indexes. The Standard & Poor’s 500 Index of U.S. shares is up 14 percent in 2009.

“If the current environment of slow economic recovery and low short-term rates persists, gold should stand to benefit as it competes with the stock market for fresh capital,” said Tom Pawlicki, an MF Global Inc. analyst in Chicago.

The Federal Reserve has kept the benchmark U.S. lending rate at zero to 0.25 percent for 11 months to revive growth.

China, Japan and other Asian nations are unlikely to sell gold in coming years, according to the European Central Bank’s main adviser on money-market operations.

“I anticipate these countries are very unlikely to appear on the sell side of the market,” the ECB’s Paul Mercier said today at a conference in Edinburgh. “If anything, we will see a stabilization, if not an increase, in reserves of gold.”

Bullion Holdings

Central banks and other “official” entities such as the International Monetary Fund held 26,350 metric tons of gold at the end of last year, according to London-based research company GFMS Ltd. By comparison, investment holdings in exchange-traded funds were 1,222 tons, GFMS said in its 2009 Gold Survey report.

Investor assets in gold are rising as purchasers put money into new products, Credit Suisse’s Merath said. Still, bullion holdings in the SPDR Gold Trust, the biggest exchange-traded fund backed by the metal, slipped 0.1 percent to 1,103.52 tons as of Oct. 30, according to the company’s Web site.

The end of seasonal buying in India and the Middle East may cause gold to fall to $1,000 “over the short term,” Investec Securities said today in a report.

The drop in SPDR assets from 1,109 tons three weeks earlier is “significant” because “continuous inflows are needed to support the metal,” Investec said.

Hedge funds and other large speculators trimmed net-long positions, or bets on higher prices, in New York gold futures for a second week as of Oct. 27, Commodity Futures Trading Commission data on showed on Oct. 30.

Among other precious metals, silver futures for December delivery advanced 18.5 cents, or 1.1 percent, to $16.44 an ounce in New York. The most-active contract is up 46 percent in 2009.

To contact the reporters on this story: Claudia Carpenter in London at ccarpenter2@bloomberg.net; Pham-Duy Nguyen in Seattle at pnguyen@bloomberg.net.

Last Updated: November 2, 2009 14:17 EST