It was reported that gold rose for the third time in four sessions on speculation that the Federal Reserve will hold US lending rates low for an extended period, eroding the value of the dollar.

The greenback dropped as much as 0.5 per cent against a basket of six major currencies. Gold rose 24 per cent last year as the central bank kept rates at close to zero percent to spur the economy, helping send the dollar down 4.2 per cent.

“If the Fed foolishly keeps interest rates too low for too long, money is going to flow into gold and commodities,” said Leonard Kaplan, the president of Prospector Asset Management in Evanston, Illinois.

Gold futures for February delivery rose $US7.40, or 0.7 per cent, to $US1136.80 an ounce on the Comex division of the New York Mercantile Exchange. Prices climbed as much as 0.8 per cent and dropped as much as 1 per cent.

The metal may top $US1200 in the first half of the year on demand for a hedge against inflation, said Philip Klapwijk, the chairman of London-based researcher GFMS Ltd.

In 2009, gold rallied for the ninth straight year, reaching an all-time high of $US1227.50 on December 3.

Gold imports by India, the world’s biggest buyer, fell 18 percent to 343 metric tons last year as record prices curbed demand from jewelers and housewives, the Bombay Bullion Association Ltd. said today.

“This is not the time to hold long-term positions,” Kaplan said. “Gold is still just too expensive.”

Silver futures for March delivery rose 29.5 US cents, or 1.6 per cent, to $US18.55 an ounce in New York. The metal is up 74 per cent in the past 12 months.

Investors who put their money in gold exchange-traded funds (ETFs) are smiling their way to the bank. Gold ETFs have outperformed physical gold with returns of 30 per cent in a year, while physical gold has so far gone up only about 23 per cent (average on an annualised basis) in the same period.

Though physical gold has gone above Rs 18,000 per 10 grams recently, on average it was at Rs 15,400 per 10 gram in 2009 from Rs 12,500 in 2008. Dhirendra Kumar, CEO, Value Research, said, “Realising better returns, now some of the gold ETFs have attracted investors to invest in ETFs more than any other funds. Recently, some exchange-traded fund companies such as Gold Benchmark, Kotak Gold, Quantum Gold, Reliance Gold, SBI Gold and UTI Gold have shown their performance with a rise of as much as 30 per cent in one year’s time.”

Just more than two-year old gold ETFs — instruments that can be traded like shares — are backed by physical gold holdings. As the country’s gold collection under exchange-traded funds rose 32.9 per cent a year to 7.4 tonnes in November, industry sources said, this new segment would gain more popularity with some more funds planning to enter the market.

“In the mutual fund space, we avail only two distinct kinds of gold-related funds. The first one is gold ETFs, which closely track the price of gold itself and deliver profits and losses that mirror investing in physical gold. The second one consists of a couple of equity funds (one from AIG and the other from DSP BlackRock) that actually invest, not in gold, but in foreign gold-related stocks, like those of gold mining and processing companies,” Kumar said, adding, “Over the last one year, gold has gained 44 per cent (year-on-year basis), but these funds have gained more than twice that.”

Kumar said, “All the ETFs deliver identical returns. Unlike an investor in equity or equity-backed products, there aren’t hundreds of choices.” Jaydeep Bhattacharya, chief marketing officer, UTI Mutual Fund said, “In the long term, bulls think the metal will continue to shine. Gold has been proved to be a historic store of value and an inflation hedge. I think it is an asset class, not just a trade. As far as gold fund is concerned, for last three months and six months we have seen 6.83 per cent and 17.3 per cent rise of returns respectively in absolute term and it may be doubled on an annual basis.”

Hiren Dhakan, mutual fund analyst, Bonanza Portfolio said, “The US dollar and gold share universal correlation with each other. Gold isn’t a bubble. Although it has gained of late, the dollar remains weak, the stock market has run up more than fundamentals support, and a lot of people haven’t invested in gold yet. That suggests gold ETF investors should stand apart.”

It is reported that the gold price in Hong Kong went up 100 HK dollars to open at 10,960 HK dollars per tael on Thursday, according to the Bank of China (Hong Kong).

The price is equivalent to 1,188.40 U.S. dollars a troy ounce, up 10.77 U.S. dollars at Thursday’s exchange rate of one U.S. dollar against 7.7415 HK dollars.

It is becoming clearer that higher gold prices are tracking prospects for further devaluation of the U.S. Dollar. This is a result of the falling relevance and global stature of the U.S. economy, military and political cohesiveness. The stability of gold as a currency provides one of the best and most immediate polls on the direction of a nation’s future.

Gold has broken away from the seasonal pattern of flat to declining prices over the summer in each of the last seven years. This may have been a good indication that monetary easing in 2008 was beginning to circulate through the economy, increasing liquidity and the money supply. This presumed increase in liquidity could have been a reason for increases in the price of gold and the Dow. Not surprisingly, the rate of money circulation is anemic, as evidenced by low demand and supply of credit. It appears that liquidity may not be finding its way into either reported inflation indices or growth in gross domestic product (GDP). Without signs of reported inflation or credible signs of a return to a robust economy, the Federal Reserve has little impetus to increase interest rates, making the U.S. dollar less attractive. The gold price and the level for the Dow have achieved higher valuations even as the U.S. dollar depreciates relative to those assets.

The perspective that higher gold prices are not due to either inflation or lack of economic growth in the U.S. does not mean that inflation is not in our future. Simply from a U.S. perspective, gold did not become more valuable, but rather, the U.S. dollar lost value. Considering the United States lack of manufacturing and dependence on imports, higher inflation in the U.S. appears certain. Internationally, very real concerns exist over the U.S. deficit and its level of debt to GDP. While interesting today for traders and speculators, these trends may have very real implications for the economy and future of the U.S. On the present course, even at historic highs, hedging against inflation or further devaluations of the U.S. dollar with gold and gold equities appears to be a reasonable strategy.

So long-term U.S. dollar devaluation is Good for Gold.

It is reported on Oct. 14 that soaring prices are likely to dent the demand for gold tomorrow, which is Dhanteras.

Merchants are expecting demand to fall by as much as 50 per cent, with buyers opting for smaller items.

The yellow metal rose to a record high of above $1,070 an ounce on Wednesday in London as the dollar slid to 14-month lows against the euro and oil prices inched towards $75 a barrel, boosting interest in commodities.

In India, where markets are influenced by global trends, prices are sizzling at record levels. In Calcutta, pure gold is at Rs 16,265 per 10 gm after scaling Rs 16,385 yesterday.

Dhanteras, when precious metals are bought in the belief it would lead to prosperity, generally accounts for sales of 15-20 tonnes of gold. But when consumers throng to jewellery shops and banks on Thursday, they are expected to look for smaller items.

“This year, our new initiative has been the 2 gram coin,” said an executive in a private bank in Mumbai. “Smaller coins are definitely going to sell more,” the executive added.

Traders and dealers said high prices, inflation and the economic slowdown are turning people into cautious buyers. “We see gold demand to drop by 50 per cent tomorrow because prices are ruling at an unaffordable level now,” Bombay Bullion Association president Suresh Hundia said.

Dhanteras is also expected to show Indians’ growing love for gold as an investment in the form of coins and bars rather than jewellery.

Jewellers and traders said the shift towards buying bullion over the past 4-5 years was here to stay as more consumers realise it is the more economical way to buy gold.

It is said from Harmesh Arora (director of NIBR Bullion Pvt Ltd, a Mumbai-based gold refinery that sells coins) that now even small investors have started buying gold coins. They collect it for their children.

Gold futures may tread higher nearing the keenly watched 16,000-rupees mark this week, supported by a weak dollar overseas, with investors eyeing the outcome from the Fed monetary policy and G20 meet for direction.

The most-traded October contract was 0.46 percent higher at 15,848 rupees per 10 grams at 6:04 p.m., when a weak dollar overseas supported the yellow metal, recovering from its one-week low of 15,665 rupees, struck on Monday in late-trade.

The euro hit a one-year high against a sliding dollar as dealers took advantage of the U.S. currency’s rise the previous day to resume selling ahead of a Federal Reserve monetary policy meeting and Group of 20 summit later in the week.

A weak dollar enhances gold’s appeal as an alternative asset to the greenback.

Prices are still below the all-time high of 16,040 rupees, struck on Feb. 20, earlier in the year.

“Gold may test 15,950-15,975 rupees later in the week,” said Gnanasekar Thiagarajan, director, Commtrendz Research.

“Gold may be in the range of 15,100-15,950 for the week,” said Pradeep Unni, senior research analyst with Richcomm Global Services.

However, subdued demand from India, the world’s largest consumer, may keep the upside limited, they added.

India’s gold demand abated on Tuesday after picking up for two continuous sessions, as prices recovered from their one-week low.

The World Gold Council’s January to June figures show India’s gold imports fell 55 percent to 126.7 tonnes from 282.3 tonnes a year earlier.

U.S. gold futures rose toward $1,020 an ounce on Tuesday, gaining 1 percent as a sharp deterioration of the dollar’s value triggered investment buying in gold as a currency hedge.

GOLD

* December gold GCZ9 settled up $10.60, or 1.1 percent, at $1,015.50 an ounce on the COMEX division of New York Mercantile Exchange.

* Ranged from $1,004.20 to $1,021.50.

* Gold boosted by a tumbling dollar. Deteriorating sentiment toward the U.S. currency pushed FX dealers to sell it ahead of a Federal Reserve meeting and Group of 20 summit this week. U.S. dollar index .DXY fell almost 1 percent against a basket of major currencies. [USD/]

* Gold’s rally primarily was driven by its inverse relationship with the U.S. dollar – Frank Holmes, chief executive officer and chief investment officer of U.S. Global Investors, a commodities-focused fund manager.

* Gold could still go higher in deflationary economy because of currency devaluation as a result of deficit spending and a strong resolve to keep interest rates negative – Holmes.

* Gold, which is priced in the U.S. currency, usually goes up with a falling greenback. Gold is also seen as an alternative to holding dollar-denominated assets and other major currencies.

* Gold’s status as an investment continues to rise. The world’s largest gold-backed exchange-traded fund, the SPDR Gold Trust GLD, said its holdings stood at 1,101.735 tonnes as of Sept. 21, up from 1,086.479 tonnes the previous day.

* Lack of gold jewelry demand, however, could limit further gains – traders.

* India’s gold imports in 2009 may fall to their lowest level since trade was liberalized 12 years ago as high prices have put off buyers in the world’s biggest market for the metal – top Indian importer. [ID:nBOM512227]

* Worries about imminent shorter-term traders also dragged prices lower, as trade data showed that speculators held a record net long position in U.S. gold futures.

* U.S. crude futures rebounded above $71 per barrel on improved sentiment for demand and a weaker dollar. [O/R]

* Gold-to-oil ratio at 14.21, down from the previous session’s 14.41.

* COMEX estimated final volume at 96,316 lots.

* Spot gold XAU= at $1,013.25 at 2:32 p.m. EDT (1832 GMT) versus $1,002.55, which was the previous session’s late New York quote.

* London afternoon gold fix XAUFIX= was at $1,014 an ounce.

SILVER

* December silver SIZ9 finished up 23.5 cents, or 1.4 percent, at $17.115 an ounce, up with gold.

* Range from $16.830 to $17.345.

* COMEX estimated final volume at 21,997 lots.

* Spot silver XAG= was at $17.07 versus its previous finish of 16.80 an ounce.

* London silver fix XAGFIX= at $17.24 an ounce.

PLATINUM

* October platinum PLV9 ended up $17, or 1.3 percent, at $1,339.20 an ounce on the back of stronger global equities markets.

* Spot platinum XPT= was at $1,329 compared with its previous finish of $1,315.50.

PALLADIUM

* December palladium PAZ9 closed up $3.25, or 1.1 percent, at $302.40 an ounce.

* Spot palladium XPD= was at $300 against its previous close of $294.50.