Capital Gold Group Report: Gold Rises as Dollar Rally Against Euro May Stall; Silver Gains

By Pham-Duy Nguyen

April 2 (Bloomberg) -- Gold rose in New York for the first time in a week on speculation the dollar's rally against the euro will stall. Silver also gained.

The dollar was little changed against the euro after gaining 1.1 percent yesterday. The U.S. currency fell 7.6 percent in the first quarter, touching an all-time low against the euro, as gold gained 10 percent, reaching a record $1,033.90 an ounce on March 17.

``Gold depends on the direction of the dollar,'' said Frank Lesh, a trader at FuturePath Trading LLC in Chicago. ``Everyone is wondering if this is the end of the dollar rebound.''

Gold futures for June delivery rose $6.20, or 0.7 percent, to $894 an ounce at 11:06 a.m. on the Comex division of the New York Mercantile Exchange.

Silver futures for May delivery rose 19.5 cents, or 1.2 percent, to $17.085 an ounce on the Comex. The price rallied 16 percent in the first quarter.

Federal Reserve Chairman Ben S. Bernanke today told Congress the economy may contract in the first half. The Fed has cut interest rates six times since September as a housing slump and a credit crisis threatened to push the economy into a recession.

``If the economy looks weaker than expected, then we're going back up with these commodities,'' Lesh said.

The UBS Bloomberg Constant Maturity Commodity Index of 26 raw materials has dropped 8.4 percent from a record on Feb. 29.

Gold has climbed for seven straight years as rising commodity costs and a weaker dollar boosted demand for the precious metal as a hedge against inflation.

Inflation Accelerates

Gold rose 31 percent last year as consumer prices climbed the most since 1990 and the dollar fell 9.5 percent against the euro.

Still, the metal has tumbled 14 percent from the highest ever. Investment demand in the StreetTracks Gold Trust, the biggest exchange-traded fund backed by bullion, has fallen 3.3 percent to 642 metric tons from a record 663.8 tons on March 17.

``The bulls may attempt a push back to higher levels as the week closes out,'' said Jon Nadler, a senior analyst at Kitco Minerals & Metals Inc. in Montreal. ``There are no guarantees, however. Sentiment has been shaken and stirred across the board in commodities.''

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