U.S. gold futures ended higher on Monday as a weaker dollar boosted bullion’s appeal as a hedge against the weakening value of paper assets due to currency depreciation. Gold, little changed in London Monday, may gain on speculation a weaker dollar will boost the metal’s appeal as an alternative investment.

The Dollar Index, a six-currency gauge of the greenback’s strength, fell as much as 0.3 percent Monday. Bullion has climbed 20 percent this year as investors sought to protect their wealth from the declining dollar and as a hedge against inflation. Gold prices, heading for a ninth annual gain, reached a record US$1,070.80 an ounce on Oct. 14.

“It is still too premature to short gold,” Andrey Kryuchenkov, a VTB Capital analyst in London, said Monday in a report.

Immediate-delivery bullion added US$2.72, or 0.3 percent, to US$1,056.32 an ounce at 11:36 a.m. local time. The metal rose 0.4 percent last week, the eighth gain in nine weeks. December gold futures were 0.5 percent higher at US$1,057.10 an ounce on the New York Mercantile Exchange’s Comex division.

CME Group Inc. will allow gold to be used as collateral to back trades on its exchange, according to a member notice dated Oct. 16. Gold would be the first commodity to be used as margin on CME trades, spokesman Jeremy Hughes said by phone Monday.

The metal gained to US$1,054.50 in the morning “fixing” in London, used by some mining companies to sell production, from US$1,047.50 at the afternoon fixing on Oct. 16. Still, nine of 16 traders, investors and analysts surveyed by Bloomberg, or 56 percent, said bullion would fall this week. Five forecast higher prices and two were neutral.

“The whole market is expecting to see some consolidation first before another round of buying,” said Kate Harada, a senior trader with Mitsubishi Corp. Futures & Securities Ltd. in Tokyo.

UBS AG raised its one-month and three-month forecasts for gold to US$1,000 an ounce and US$1,050 an ounce, from US$950 and US$1,000 respectively, John Reade, the bank’s head metals strategist in London, said Monday in a report. Gold holdings in the SPDR Gold Trust, the biggest exchange- traded fund backed by bullion, were unchanged for a seventh day at 1,109.31 metric tons on Oct. 16, according to the company’s Web site.

Assets in ETF Securities Ltd.’s exchange-traded products fell 5.1 percent to 8.068 million ounces on Oct. 16, its Web site showed.

An investor who recently bought shares in one of the company’s gold products made a “one-off” transaction, Nicholas Brooks, head of research and investment at ETF Securities, said Monday by phone. He declined to name the investor.

UBS also raised its one-month and three-month forecast for silver to US$16 an ounce and US$17.50 an ounce, from US$14 and US$15.50 respectively. The bank increased its three-month platinum estimate to US$1,375 from US$1,275, and its three-month palladium forecast to US$330 from US$240.

Silver for immediate delivery in London added 0.3 percent to US$17.515 an ounce. Platinum rose 0.6 percent to US$1,350.95 an ounce, while palladium lost 0.2 percent to US$328.50 an ounce.

It is reported that the surging prices of the yellow metal globally have triggered demand for gold-related shares on the A-share market.

Leading gold mining shares including Shandong Gold Mining Co Ltd, Zhongjin Gold Corp, Zijin Mining Group Co Ltd, and new entrant Shandong Tyan Home Co Ltd rose sharply after gold prices breached the $1,000 per ounce mark in early September.

While gold prices at the New York Commodity Exchange have surged around 35 percent since November 2008, the Shenwan Gold Index, the gauge of a basket of gold producing companies on the A-share market, has jumped by as much as 150 percent, and surpassed 200 percent at its peak, according to statistics from Wind Info.

As inflation fears and a weaker dollar continue to propel gold demand and peg the prices at the over $1,000 per ounce mark on international markets, more and more analysts have started taking an optimistic stance on the earnings of yellow metal producers.

“Chinese gold miners such as Shandong Gold Mining and Zhongjin Gold Corp will benefit from this round of price surges,” China Minzu Securities said in a recent report.

Ma Qianqi, analyst, Central China Securities, said apart from the price surge on the international markets, the Chinese market is also expected to witness larger demand as traditional holidays such as the National Day Holiday is round the corner and would be followed by the Spring Festival.

The week-long national holiday, which is traditionally a peak time for young couples to hold wedding ceremonies, is expected to push domestic demand for gold jewelry to a new high.
“The demand from gold jewelry makers will continue to propel gold prices,” Ma said.

In fact, most of the jewelry dealers have already increased gold prices. Beijing-based Caishikou Department Store, the largest gold jewelry retailer in the capital, increased gold prices by 6-7 yuan for each gram on September 15.

International gold prices have broken the $1,000 an ounce mark three times in the past with the last such instance on March 17, 2008, when it touched $1,030.80 per ounce.

Gold was quoted at $1,005.85 an ounce yesterday, within sight of a record high set on March 17 of last year.

Many analysts see international gold price rising further. Gold price could rise above $1,110 an ounce in 2010 as central banks diversify their reserves into gold due to a faltering dollar, economist Martin Murenbeeld at Dundee Wealth Economics told the Denver Gold Forum on Tuesday, Reuters reported.

“I believe the gold price will rise to $1,200 per ounce within the next six months,” Qin Weihuan, a researcher at China Gold Association, told China Daily.

“In the past, gold prices dropped back after it hit over $1,000 per ounce. But I believe this time the price has really breached the $1,000 ceiling and will stay at these levels for some time.”Qin said gold prices have entered a new “era” as inflation fears and uncertainty over the world economy will prompt investors to look for safe havens in bullion.

On the liquidity side, Qin said he believes that international buyers have already made most of the rally by buying the yellow metal.

The world’s largest gold-backed exchange-traded fund, the SPDR Gold Trust, said its holdings stood at 1,078.851 tons as of September 15. But there are pessimistic opinions too.

Fan Haibo, analyst with China Cinda Securities, said he doubts whether gold prices would stay at over $1,000 per ounce.

It is said from a commercial banker on Tuesday that China is more likely to keep purchasing gold from its domestic producers rather on the global markets if it decides to increase its stockpile.

The State Administration of Foreign Exchange, an arm of the central bank, disclosed in April that it had raised its gold reserves to 1,054 tonnes from 600 tonnes since 2003 — but by buying from local producers and on the domestic market.

“China has no need at all to buy gold from the international markets,” Lila Lu, head of precious metals at Minsheng Bank Corp, told Reuters.

“Because China is a large gold producer, it can source gold directly from its domestic makers, most of which are state-run enterprises,” she said.

Minsheng, a medium-sized commercial bank based in Beijing, is China’s first listed non-state lender.

Analysts expect China to add to its gold holdings as a hedge against dollar depreciation, and speculation is swirling that Beijing will buy some of the bullion being offered for sale by the International Monetary Fund.

“It’s possible. It would be normal if we did buy, but it may also be a rumour,” Lu said.

Chinese officials have said they are keen to diversify the country’s $2.13 trillion of official currency reserves, some 70 percent of which are invested in dollar-denominated securities.

But Lu said there was no reason for China to dip into its reserves to buy gold.

“China has many other ways to invest its foreign exchange reserves. Why should we use dollars to buy gold? We can use yuan instead to purchase gold from domestic producers,” she said.

China surpassed South Africa in 2007 to become the world’s largest gold producer and output reached a record high of 282 tonnes in 2008. In the first half of this year, production rose by 13.5 percent from a year earlier to 146.5 tonnes.

Lu said she saw growing Chinese investment demand for gold, especially gold-linked products that can be more easily traded than bullion. These include “paper gold” sold through banks and margin trading on the Shanghai Gold Exchange.

“While I don’t see much change in physical gold trading, I feel that paper gold and margin trading will see big growth in China in coming years,” Lu said.

She said she expected turnover on Shanghai’s gold bourse to fall this year because of reduced price volatility.

Minsheng traded 208.3 tonnes of gold, or 13.3 percent of the exchange’s total, in 2008.

She said global economic uncertainty and the prospect of further dollar weakness could push gold up to $1,200 an ounce by the end of this year. The metal rose about $9 on Tuesday at $1,011.55.