Gold rises on bets that dollar will drop

A falling greenback is spurring purchases of the yellow metal.

Gold prices climbed for the sixth straight session on speculation that the dollar will decline, boosting demand for the metal as an alternative investment.

The dollar touched a 15-month low against a basket of major currencies on November 16. The greenback climbed as much as 0.8 per cent on November 20. Gold usually moves inversely to the greenback. Gold reached a record $1,153.40 an ounce on November 18 and has fallen once in 15 sessions this month. The metal has climbed 30 per cent this year, heading for a ninth straight annual gain.

“People are still buying gold because they think the dollar hasn't been broken yet,” said Marty McNeill, a trader at R.F. Lafferty Inc. in New York. “If the dollar rallies, it's an excuse to sell for profit. Any dip in prices is a buying opportunity.”

Correlation 'fade'
The popularity of exchange-traded funds backed by gold may diminish the historic inverse correlation between the dollar and the metal during times of financial turmoil, Deutsche Bank AG said in a report.

Investors have poured $55.5 billion into gold ETFs in the nine months ended September 30, Jason Toussaint, the World Gold Council's managing director of ETFs, said last week. SPDR Gold Trust, the biggest bullion-backed ETF, has almost 1,118 metric tons, or more than China's reserves. China ranks sixth among official holders with 1,054 tons, according to data from the producer-funded council.

The US has the largest reserves. “The gold price should not fear a new long-term uptrend in the dollar,” Deutsche Bank said. “In periods of risk aversion which lead to a strengthening dollar and strong inflows into gold ETFs, the strong correlation may start to fade.” The authors are Bloomberg columnists. The opinions expressed are their own