Gold climbs above $985 as dollar falls

Gold climbed to the highest in over three months as a slumping dollar increased demand for the precious metal as a store of value. Silver gained the highest since August.

Precious metals advanced as the dollar dropped to the lowest since December 18 against a basket of six major currencies, after posting its biggest monthly loss this year in May. Silver rose 27 per cent in May, the most since April 1987, and gold added 10 per cent, the most since November.

“The dollar’s weakness continued to lend support to commodities, including precious metals and crude oil,” said Hiroyuki Kikukawa, general manager of research at IDO Securities Co. in Tokyo.

Gold for immediate delivery added as much as 0.7 per cent to $985.70 an ounce, the highest since February 24, and was at $983.51 in Singapore. Silver for immediate delivery climbed as much as 1.3 per cent to $15.95 an ounce, the highest since August 8, before trading at $15.865.

Spot silver has jumped 39 per cent this year, while gold has gained 12 per cent. One ounce of gold now buys about 62.1 ounces of silver, the lowest this year, according to data compiled by Bloomberg. This is down from a high of 84.39 in October, which was the most since March 1995. “Both precious metals appeared to have been overbought,” Kikukawa said. Silver’s 14-day relative strength index, a gauge of momentum, rose above 70 on May 28, a signal some investors use to indicate prices may be about to decline. The index for gold climbed above 70 on May 29.

“Given the re-emergence of the typical inverse relationship between the dollar and gold, the likelihood of further weakness in the dollar should drive gold to a test of its 2008 record highs,” said Toby Hassall, an analyst at Commodity Warrants Australia Pty in Sydney.

Spot gold reached a record $1,032.70 on March 17, 2008.

The dollar index touched 79.086, the lowest this year, and was at 79.285 in Singapore.

Commodities posted the biggest monthly rally in 34 years in May, as the slumping dollar bolstered demand for energy, metals and crops as a hedge against inflation. The ReutersôJefferies CRB Index of 19 materials gained 14 per cent, the most since July 1974.

Among other precious metals for immediate delivery, platinum increased 1.8 per cent to $1,214 an ounce and palladium added 0.9 per cent to $238.25 an ounce.