A Surprise from Gold and Silver Prices

Gold and silver gained for a second day in New York on speculation a decline in the value of the dollar will boost the appeal of precious metals as alternative investments.

Gold generally moves in the opposite direction of the dollar. The U.S. currency fell to a record against the euro yesterday on speculation that interest rates will rise faster in Europe after Federal Reserve Chairman Ben S. Bernanke scaled back forecasts for U.S. economic growth.

``It appears now the Fed doesn't want to raise rates,'' said Leonard Kaplan, president of Prospector Asset Management in Evanston, Illinois. ``That's going to put pressure on the dollar and push gold prices higher.''

Gold futures for August delivery rose $2.10, or 0.3 percent, to $675.80 an ounce at 12:05 p.m. on the Comex division of the New York Mercantile Exchange. Before today, gold had gained 5.6 percent this year, while the euro climbed 4.6 percent against the dollar.

Silver futures for September delivery rose 4.5 cents, or 0.3 percent, to $13.335 an ounce. Before today, the price had climbed 2.7 percent this year.

The euro reached $1.3833 yesterday, the highest since its debut in 1999. The Federal Reserve has kept its benchmark lending rate at 5.25 percent since June 2006. The European Central Bank's benchmark is 4 percent after two increases this year.

Gold's gains may be limited should the euro's rally against the dollar stall, analysts said.

Historical price charts show gold may trade in a range until a close above $675 that may spark more buying, said Frank McGhee, head metals trader at Integrated Brokerage Services LLC in Chicago.

``It's a very short-term technical factor,'' McGhee said. ``Gold's had a double top in the August futures.''

A double top occurs when a price hits a peak, then drops and returns to that peak. If the price reaches the peak a third time, the market is poised to gain.

A futures contract is an obligation to buy or sell a commodity at a set price for delivery by a specific date.

source:bloomberg.com