Nov. 4 (Bloomberg) -- Gold futures in New York rose for a second day on speculation the re-election of U.S. President George W. Bush will result in a weaker dollar, increasing the lure of the precious metal as an alternative investment.

Gold for December delivery rose as much as 0.9 percent, or $3.90, to $429.30 an ounce on the Comex division of the New York Mercantile Exchange. The contract rose $4.60 yesterday, the most in almost three weeks, after Bush defeated Democratic challenger John Kerry.

The dollar was near a nine-month low on expectations Bush's victory, and the Republicans tightening of control over the legislature would mean more tax cuts, more spending on security and so a bigger deficit. Some investors buy gold because it's a store of value when the dollar is falling.

``With the election over, the underlying issues for the market is the dollar,'' said Craig Ferguson, a market strategist with Australia & New Zealand Banking Group Ltd. in Melbourne. ``The fiscal account deficit will not change and that is negative for the dollar.''

Gold futures were trading 0.7 percent, or $2.80, higher at $428.20 at 12:13 p.m. in Singapore. The dollar was unchanged at $1.2821 to the euro, having been at $1.2842 on Oct. 26, its lowest since Feb. 18. The U.S. currency was little changed against the Japanese yen at 106.24 at 12:17 p.m. in Singapore.

The U.S. budget deficit swelled to a record $412.6 billion in September on costs related to the war in Iraq and domestic security. The current-account shortfall was $166.2 billion in the second quarter, equivalent to 5.7 percent of the economy, up from 5.1 percent in the first quarter. The current account is a measure of trade, services, tourism and some investments.

China

The need to finance the current-account deficit may force the dollar lower and interest rates higher, according to a report by New York Fed economists published Oct. 28.

``People expect the Bush government to tolerate a weak U.S. dollar and that's bullish for gold,'' said Ellison Chu, manager of precious metals at Hong Kong-based Standard Bank Asia Ltd.

Chinese investors may sell the precious metal if gold reaches more than $430 an ounce, acting as a break on rising prices, Chu said.

Gold futures closed at $429.40 on Oct. 29, the highest for the generic contract in 12 months. The December contract rose above $430 an ounce four times this month, failing to close at that level each time.

Gold for immediate delivery on the Shanghai Gold Exchange was trading 113.05 yuan a gram, or 3,504.55 yuan ($423) an ounce, up from yesterday's close of 112.13.

India

Gold prices in India, the world's biggest consumer of the precious metal, fell 0.9 percent, or 55 rupees, to 6,340 per 10 grams yesterday, according to Multi Commodity Exchange of India Ltd. in Mumbai.

``Gold prices may have fallen yesterday but they will rise today to trade around 6,360,'' said Ravi Jalan, a trader at Delhi- based Jalan Commodities. ``The war in Iraq will continue with Bush coming back and any setback in oil production will fuel gold prices. I see gold touching $440 in the next few days.''

Hedge funds and other large speculators increased their bets gold prices would continue to rise to their highest since April in the week ended Oct. 26, according to U.S. Commodity Futures Trading Commission data. So-called net-long positions in Comex gold futures outnumbered shorts by 127,895 contracts.

Gold reached a 14-year high of $432 an ounce April 1, before beginning a 14 percent slide to $373 an ounce on May 10.

``I don't expect any immediate, big changes in gold,'' said Alex H.J. Lee, general manager at Korea Exchange Bank Futures Co.'s international marketing division. ``Bush will probably maintain his current policies and the threat of terrorism is still out there, so there's no reason for funds to change their positions. There's no news to bring gold below the $420 range.''

To contact the reporter of this story: Tan Hwee Ann in Melbourne at hatan@bloomberg.net

Last Updated: November 3, 2004 23:26 EST