Gold Futures Rebound in N.Y. on Dollar’s Decline

By Pham-Duy Nguyen

http://www.bloomberg.com/apps/news?pid=20601081&sid=aDyZ2gge5vg0&refer=australia

March 11 (Bloomberg) -- Gold futures rose, rebounding from the lowest price in a month, as the slumping dollar enhanced the appeal of the precious metal as an alternative investment. Silver gained the most in two weeks.

The dollar fell as much as 1.2 percent against a weighted basket of six major currencies. Gold and the dollar historically have moved in the opposite direction. The correlation hasn’t held this year as investors purchased both assets as a hedge against turmoil in financial markets.

“Gold is still an exceptional buy,” said Frank McGhee, the head dealer at Integrated Brokerage Services LLC in Chicago. “Traders will start looking at more traditional relationships like future inflation, government spending and devaluing of currencies.”

Gold futures for April delivery rose $14.80, or 1.7 percent, to $910.70 an ounce on the Comex division of the New York Mercantile Exchange. Yesterday, the price touched $891.10, the lowest since Feb. 3.

Silver futures for May delivery gained 26 cents, or 2.1 percent, to $12.80 an ounce, the biggest gain since Feb. 20. Gold has gained 3 percent in 2009, while silver is up 13 percent.

Gold reached a record $1,033.90 on March 17 as the dollar headed for an all-time low against the euro. In the second half of 2008, the dollar rallied as investors sought a haven from declining equity markets. Gold gained 5.5 percent last year, while the dollar rose 6 percent against the basket of currencies.

Gold’s gains accelerated today after U.S. equities pared gains. The Standard & Poor’s 500 Index climbed as much as 1.7 percent before dropping. Yesterday, the gauge jumped 6.4 percent, the most this year. Gold fell as low as $892.60 today.

A rebound in equities would “be a bearish development as investment transfers from gold toward riskier assets,” said Tom Pawlicki, an analyst at MF Global Ltd. in Chicago.

Since March 6, investment in the SPDR Gold Trust, the biggest exchange-traded fund backed by bullion, has been unchanged at 1,029 metric tons, close to the all-time high.

“It’s becoming evident that the buying in ETFs may have been led by a small group of hedge funds, whose actions can be incredibly difficult to predict,” Pawlicki said. “It’s also likely that they are now under water on those positions.”

Greenlight Capital Inc., the $5.1 billion hedge fund run by David Einhorn, said last month it invested in gold for the first time in the fourth quarter, making a bullion-backed exchange- traded fund its largest holding.