Source: Bloomberg.com
New York— Gold rose for a third consecutive day in London on speculation that a weakening dollar is increasing the appeal of bullion as an alternative investment to U.S. stocks and bonds.
Gold has risen 16 percent this year, reaching a 24-year high this month, as investors sought to diversify their portfolios. Hedge funds and other large speculators have more than doubled their total net long position, or bets prices will rise, on the Comex division of the New York Mercantile Exchange since the start of the year.
“Light pockets of fund buying are pushing gold higher,'' James Moore, a Kettering, England-based precious metals analyst at the TheBullionDesk.com, said in a telephone interview.
Gold for immediate delivery in London rose as much as $3, or 0.6 percent, to $510.90 an ounce. The metal was at $509.38 at 10:38 a.m. local time. Gold, which gained 5.5 percent last year, is heading for its fifth consecutive annual gain.
Gold has averaged $444.81 an ounce this year. The metal may average $550 next year, reaching as high as $600 by the end of 2006, John Meyer, an analyst of Numis Securities in London, said yesterday.
The dollar traded at $1.1910 against the euro, from $1.1826 late yesterday in New York, according to electronic foreign- exchange dealing system EBS. The euro gained against the dollar after a report by GfK AG showed German consumer confidence climbed to a six-month high.
The correlation coefficient for gold and the euro is 0.63. That measures the coincidence of closing daily gains and declines in the past two years on a scale of -1, meaning prices move opposite each other, to 1, meaning they move in lockstep.
Gold holdings
Prices were also buoyed by speculation that some central banks may add to their gold reserves, Moore said.
China should increase its gold holdings to 2,500 tons from 600 tons in the “short term,'' the nation's official Xinhua News Agency reported today, citing economist Teng Tai, of China Galaxy Securities.
That would make China the world's fifth-biggest holder of gold, behind the U.S., Germany, the International Monetary Fund and France. It is currently ranked No. 10, according to the London-based World Gold Council.
World gold production was 2,461 tons last year, according to London-based research group GFMS Ltd.
“The overall outlook should remain bullish in the coming year, fuelled by speculation that Asian central banks are likely in favor of increasing their gold reserve holdings,'' Standard Bank said today in a report today on its Web site.
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