Gold Futures Cap Biggest Advance in Seven Weeks on Dollar Drop

Gold capped the biggest advance since mid-October as the dollar weakened, boosting the appeal of the precious metal as an alternative investment. Silver reached the highest in almost three weeks.

The Bloomberg U.S. Dollar Index headed for a fourth straight loss, the longest slump in two months. Traders unwound bets on lower gold prices amid speculation that the Federal Reserve will signal short-term U.S. interest rates will remain low, said Bart Melek, the head of commodity strategy at TD Securities in Toronto.

“The dollar has weakened, so that is helping gold,” Melek said in a telephone interview. “We had seen some aggressive short positions being taken. Some of that is being taken off as many people feel that gold isn’t dropping into the precipice. It’s no longer a one-way bet.”

Gold futures for February delivery jumped 2.2 percent to settle at $1,261.10 an ounce at 1:37 p.m. on the Comex in New York, the biggest gain since Oct. 17. Prices reached $1,267.50, the highest since Nov. 20.

Hedge funds and other money managers held a net-long position in gold of 26,774 futures and options in the week ended Dec. 3, U.S. Commodity Futures Trading Commission data show. Short bets rose 6.2 percent to 79,631, within 0.6 percent of the record reached in July.

Bullion is set for the first annual drop in 13 years. Some investors lost faith in the metal as a store of value amid speculation that the Fed will scale back its $85 billion in monthly bond buying as the economy improves. Data last week showed U.S. payrolls rose more than forecast in November. Policy makers next meet Dec. 17-18.

“We see short covering and some bargain hunting, coupled with signs of some physical demand in China,” David Govett, the head of precious metals at Marex Spectron Group in London, wrote today in a report. “The market is still limited on the upside” as traders await the Fed meeting, he said.

Silver futures for March delivery climbed 3.1 percent to $20.315 an ounce in New York, after reaching $20.43, the highest since Nov. 20.

On the New York Mercantile Exchange, platinum futures for January delivery gained 1.5 percent to $1,388.70 an ounce. Palladium futures for March delivery rose 0.5 percent to $738.45 an ounce.

To contact the reporter on this story: Joe Richter in New York at jrichter1@bloomberg.net

To contact the editor responsible for this story: Millie Munshi at mmunshi@bloomberg.net

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