Gold Leads Precious Metals Rally on Investor Demand for Dollar Alternative

Gold advanced to a three-month high and silver posted its biggest gain in eight weeks as investors bought precious metals as an alternative to a weakening dollar. Platinum and palladium also rose.

The dollar fell for the third time in four sessions against a basket of currencies and the euro rose to a three-month high as the European Central Bank prepares to allot a second round of three-year loans to help the region’s banks tomorrow. The MSCI All-Country World Index of stocks climbed as a gauge of U.S. consumer confidence jumped to a one-year high.

“The euro is stronger against the dollar and that’s one of the major supportive factors” for gold, Peter Fertig, owner of Quantitative Commodity Research Ltd. in Hainburg, Germany, said by telephone. Higher equities are “also supportive” for commodities, including gold, he said.

Gold futures for April delivery advanced 0.8 percent to settle at $1,788.40 an ounce at 1:30 p.m. on the Comex in New York, after climbing to $1,792.70, the highest level for a most- active contract since Nov. 14.

Prices are up 14 percent this year after a 10 percent increase in 2011, the 11th consecutive annual gain, as investors sought to diversify from equities and some currencies. The dollar index has declined 1.2 percent this month while gold advanced 2.8 percent.

Supporting Gold

“The dollar’s weakness is supporting gold,” Rick Trotman, a senior research analyst at MLV & Co. in New York, said in a telephone interview.

Holdings in exchange-traded products backed by gold extended a climb to a record 2,398.2 tons yesterday, data compiled by Bloomberg show.

NYSE Euronext’s Liffe said it began options trading in gold and silver futures yesterday. The contracts will be available as options on 33.2 ounces of gold and 1,000 ounces of silver, the exchange said in a statement posted on its website.

Silver futures for May delivery rose 4.5 percent to $37.205 an ounce on the Comex, the biggest gain since Jan. 3. Earlier, the metal rose to $37.295, the highest for a most-active contract since Sept. 22. It’s the best-performing precious metal this year, up 32 percent.

“The funds seem to be very actively buying silver today,” Frank McGhee, the head dealer at Integrated Brokerage Services LLC in Chicago, said in a telephone interview.

On the New York Mercantile Exchange, platinum futures for April delivery rose 0.5 percent to close at $1,723.50 an ounce. The metal gained 5 percent last week. Palladium futures for June delivery rose 2.1 percent to $722.20 an ounce, the biggest jump in a week.

To contact the reporters on this story: Nicholas Larkin in London at nlarkin1@bloomberg.net; Debarati Roy in New York at droy5@bloomberg.net;

To contact the editor responsible for this story: Steve Stroth at sstroth@bloomberg.net

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Feb. 27 (Bloomberg) -- Sean Boyd, chief executive officer of Agnico-Eagle Mines Ltd., talks about the outlook for gold prices. Boyd also discusses Agnico-Eagle's dividend and strategy to manage costs. He speaks with Adam Johnson at the BMO Capital Global Markets Metals and Mining Conference in Hollywood, Florida, on Bloomberg Television's "Street Smart." (Source: Bloomberg)