Gold rises on weaker dollar

Production and Markets

Gold climbed in Europe on Monday as the dollar weakened against the euro and the yen, boosting interest in the metal as a currency hedge, and gains in equities and other commodities fuelled buying appetite.

Spot gold was quoted at US$826.90/828.90/oz against US$819.90/oz in New York late on Friday.

Traders are looking ahead to a decision on US interest rates on Tuesday, after the Federal Open Market Committee's two-day policy meeting.

A cut in rates is likely to have a significant impact on the foreign exchange market, and consequently on gold.

"We have the Fed interest rate decision this week ... which should be the last big event of the year," said Afshin Nabavi, head of trading at MKS Finance in Geneva.

"Everyone is banking on a lower interest rate in the US.

If the dollar continues to lose value, of course it will benefit gold."    Gold was reacting to a move higher in the euro versus the dollar, with selling of physical gold stocks in Aia and technical resistance keeping a lid on gains, he said.

Gold tends to track the euro/dollar exchange rate closely, as it is often bought as an alternative investment to the US currency and tends to move in the opposite direction to it.

The dollar slipped against both the yen and the euro, striking a two-month low against the single currency as traders weighed comments from European Central Bank officials suggesting rate cuts may not be imminent.

Interest rate differentials between the US and the euro zone are likely to widen, dealers said. The Federal Reserve is widely seen cutting rates by at least 50 basis points on Tuesday.

Among other precious metals, spot silver tracked gold higher to US$10.36/10.44/oz, against US$10.23 in New York late on Friday.

The platinum group metals benefited from hopes for a bail-out of the US automotive industry. Carmakers are major buyers of PGMs and weakness in the sector has pushed prices sharply lower in recent months.

News that major platinum producer Aquarius Platinum will keep its Everest mine in South Africa closed for at least six months is also likely to support prices.

Spot platinum climbed to US$831.50/851.50/oz from US$805.50/oz, while palladium surged to a high of US$178/oz, before easing back to US$172.50/180.50/oz, up from US$168/oz on Friday