Weaker Dollar may revive demand for gold as alternative investment

Gold, little changed in New York and London on Tuesday, may gain as a weaker dollar revives demand for the precious metal as an alternative investment.

The US Dollar Index, a six-currency gauge of the greenback’s value, fell as much as 0.7 per cent after yesterday adding the most in a week. The precious metal, which earlier slid to the lowest in six weeks, typically moves inversely to the dollar.

“The US currency continues to dictate direction,” Andrey Kryuchenkov, a VTB Capital analyst in London, said on Tuesday in a note. “Trade in our view will remain subdued until the Federal Reserve meeting on Wednesday.”

Gold futures for August delivery rose $2.40, or 0.3 per cent, to $923.40 an ounce on the New York Mercantile Exchange’s Comex division. The contract earlier fell as much as 0.9 percent to the lowest since May 11. Bullion for immediate delivery in London added $1.95, or 0.2 per cent, to $924.65 an ounce.

The metal increased to $920.25 in the morning “fixing” in London, used by some mining companies to sell production, from $919.25 at yesterday’s afternoon fixing. London spot prices have declined the past three weeks after four weeks of gains.

Gold futures dropped the most in over a week yesterday as some investors sold the metal to cover losses in equity markets. The MSCI World Index of shares on Tuesday fell to the lowest in four weeks after the World Bank yesterday projected the global economy would shrink this year by 2.9 per cent, more than its previous forecast for a 1.7 per cent contraction.

Federal Reserve policy makers start a two-day policy meeting on Tuesday. The central bank has held its benchmark interest rate near zero since December.

Investment in the SPDR Gold Trust, the biggest ETF backed by bullion, slipped to 1,131.24 tonnes yesterday from 1,132.15 tonnes on June 19, the company’s Web site showed.