Nov. 8 (Bloomberg) -- Gold reached a 16-year high in London after concern that the September U.S. trade shortfall held near a record drove the dollar to its lowest-ever versus the euro.

A weaker dollar makes gold, which is denominated in the U.S. currency, less costly for holders of other currencies and increases its attraction as a hedge against declines is U.S. assets. A government report Nov. 10 may show the trade deficit was $54 billion in September, matching the second-biggest ever, according to the median of 46 forecasts in a Bloomberg survey.

``Widening current account, trade and budget deficits in the U.S. all conspired to lift gold to its highest in 16 years,'' James Moore, an analyst at TheBullionDesk.com in the U.K., said in an e-mail.

Gold for immediate delivery rose as much as $1.70, or 0.4 percent, to $435.25 an ounce, the highest since July 29, 1988. It was up 20 cent, or 0.1 percent, at $434.85 at 9:21 a.m. The euro was at $1.2965, after earlier reaching $1.2987, the highest since the single European currency's debut in 1999. Both gold and the euro have gained 12 percent in the last year.

Most traders, investors and analysts bet gold will rise this week as President George W. Bush's policies of tax cuts and military spending push deficits higher and the dollar lower, a Bloomberg survey showed.

``Four more years of Bush is a gift to the gold markets -- more war, more deficits, more divisions,'' said Douglas Pollitt, an analyst at brokerage Pollitt & Co. in Toronto.

Gold has surged 65 percent and the dollar has fallen 28 percent since Bush took office in 2001. Under Bush, the shortfall in the U.S. current account, the broadest measure of trade, widened to a record $166.2 billion in the second quarter and the budget deficit swelled to a record $412.6 billion in the fiscal year ended Sept. 30.

Dollar Weakness

The U.S. must attract about $1.8 billion a day in overseas money to compensate for the current-account deficit and maintain the dollar's value, according to Bloomberg calculations.

``The market is clearly focused on the deficits in the U.S. and the need for a lower dollar,'' said Jonathan Prince, head of foreign-exchange institutional sales in Sydney at National Australia Bank Ltd. ``We'll see further dollar weakness.''

Forty-four of 73 traders, strategists and investors questioned on Nov. 5 from Tokyo to New York advised selling the dollar against the euro. Twenty-nine of 45 traders, investors and analysts surveyed from Sydney to New York on Nov. 4 and Nov. 5 advised buying gold.

``Bush getting re-elected means a bigger deficit, a weaker dollar and higher gold prices,'' said Graham Birch, who manages about $6.5 billion at Merrill Lynch & Co. in London. Birch predicts gold prices will reach $450 before the end of the year and rise to $500 in 2005.

He has added bullion and shares in gold mining companies to his funds this year.

Stocks

Shares in gold miners have gained since the U.S. elections.

Denver, Colorado-based Newmont Mining Corp., the world's biggest gold miner, gained 7 percent since the Nov. 2 vote. Shares in No. 2 miner, Toronto-based Barrick Gold Corp., have gained 7 percent. Newcrest Mining Ltd., Australia's biggest gold miner, rose 3.9 percent.

Aided by expanded Republican control of Congress, Bush said he would press ahead with the war on terrorism in his new term and make permanent his $1.85 trillion in tax cuts.

``The people made it clear what they wanted,'' Bush said during his first White House press conference after winning. ``I earned capital in the campaign -- political capital -- and now I intend to spend it.''

The need to finance a record current-account deficit may force the government to sell more debt. The Treasury on Nov. 1 predicted the government would need to borrow $100 billion in the final quarter of this year and a record $147 billion in the first three months of 2005. Rising bond sales and a weakening dollar signal falling prices for U.S. Treasuries.

Jihad, Arafat

Some respondents in the gold survey said gold may fall on concern the Federal Reserve will raise interest rates, boosting the value of the dollar and slowing inflation. The Fed will lift its interest-rate target to 2 percent on Nov. 10, according to all 58 economists surveyed by Bloomberg.

``Gold is due for a breather over the next week,'' said Adrian Day, president of Annapolis, Maryland-based Global Strategic Management Inc., which manages $85 million.

Still, concern of political instability in the Middle East is adding pressure on prices. Some investors buy gold as a haven in times of political unrest.

U.S.-led forces were preparing to attack the Iraqi city of Fallujah to clear out insurgents, the Associated Press reported. Saudi clerics and scholars at the weekend called for holy struggle, or jihad, against U.S.-led forces in Iraq, a statement on an Islamic Web site said.

Additional uncertainty may come should 75-year-old Palestinian leader Yasser Arafat die -- sparking unrest and a possible power struggle. Arafat was admitted to a French military hospital Oct. 29.

To contact the reporter on this story: Matt Chambers in Melbourne at mchambers1@bloomberg.net

Last Updated: November 8, 2004 04:47 EST