May 22 (Bloomberg) -- Gold rose to the highest in two months, gaining for a third consecutive week, as the slumping dollar and higher oil prices boosted the metal’s appeal as an alternative investment. Silver soared to a nine-month high.

The dollar fell to the lowest this year against a basket of six currencies including the euro and yen on speculation that the AAA credit rating on U.S. debt may be cut. Bullion typically gains when the dollar weakens and oil rises. Crude-oil futures climbed 1 percent in New York and are up 38 percent this year.

“Gold is responding positively to the decline in the U.S. dollar, rising oil prices and the overall outlook for inflation,” Philip Gotthelf, the president of Equidex Brokerage Group in Closter, New Jersey, said by telephone.

Gold futures for June delivery climbed $7.70, or 0.8 percent, to $958.90 an ounce on the New York Mercantile Exchange’s Comex division, after earlier touching $963.10, the highest for a most-active contract since March 20. Gold gained 3 percent this week.

“If the dollar weakens further and oil continues to gain,” gold will rise to as much as $1,300 by the end of June and $1,500 by the end of August, Gotthelf said.

Silver futures for July delivery advanced 25 cents, or 1.7 percent, to $14.695 an ounce in New York. Earlier, the price touched $14.86, the highest for a most-active contract since Aug. 14.

Silver rose 4.9 percent this week and has surged 30 percent this year, while gold is up 8.4 percent.

‘Flocking to Gold’

“Investors are flocking to gold as an ultimate safe haven against the sliding dollar,” Pradeep Unni, an analyst at Richcomm Global Services DMCC in Dubai, wrote today in a research note. “There is an extreme fear that the U.S. economy may lose its AAA credit rating in due course, and this has been feeding the gold bulls pretty well.”

The U.S. Dollar Index, the six-currency gauge, fell as much as 0.9 percent today to the lowest since Dec. 29. The index has dropped more than 3.6 percent this week, the steepest decline since March 20.

Gold may extend gains next week, according to 23 of 30 traders, investors and analysts surveyed by Bloomberg News.

The metal rose to $959.75 in the afternoon fixing in London, used by some mining companies to sell their output, from $952.50 at the morning fixing. Bullion for immediate delivery in London rose $3.65, or 0.4 percent, to $957.45 an ounce.

U.S. Economy

Standard & Poor’s yesterday cut its outlook to “negative” for the AAA credit rating on U.K. debt. Pacific Investment Management Co.’s Bill Gross, who helps oversee the world’s largest bond fund, said the U.S. will lose its top-grade credit rating “eventually.”

“Both the U.K. and the U.S. have prospective deficits of 10 percent annually as far as the eye can see,” Gross said in a Bloomberg Television interview yesterday. “At some point over the next several years,” each country’s debt “may approach 100 percent of GDP, which is a level at which country downgrades tend to occur,” he said.

Governments around the world are selling more bonds than ever to battle the sharpest recession in more than 50 years. The U.S. Treasury will auction about $162 billion of securities next week, including three- and six-month bills and notes maturing in two to seven years.

“Given the background fears of inflation and prolonged economic recovery, we expect gold to remain a strong choice for investors,” James Moore, an analyst at TheBullionDesk.com in London, wrote in a note today. Still, “after gaining steadily for the past two weeks, it could be running out of steam as profit-taking emerges.”

Wealth Preservation

Investment in the SPDR Gold Trust, the biggest exchange- traded fund backed by bullion, remained at 1,105.62 metric tons this week, the company’s Web site showed. The fund’s assets haven’t gained since May 13. Holdings in ETF Securities Ltd.’s exchange-traded commodities fell 0.9 percent yesterday to 7.459 million ounces, according to its Web site.

“With investors’ focus on wealth preservation unlikely to abate any time soon, gold ETFs and the physical investment arenas are set to continue experiencing healthy inflows,” Natixis Commodity Markets Ltd. said today in a report. “Although equity markets have shown signs of renewed vigor since the March lows, investors are still yet weary of leaving portfolios overexposed.”

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

Last Updated: May 22, 2009 16:48 EDT