Gold Resumes Rally, Heads for Biggest Advance Since Sept. 11

May 17 -- Gold rose in London, heading for the biggest gain since the terrorist attacks on the U.S. on Sept. 11, 2001, as the dollar fell against the euro, making the precious metal more attractive as an alternative investment.

Bullion, which fell the most since 1993 two days ago after a nine-week rally, gained almost 38 percent this year while the dollar weakened 8.9 percent against the euro. The dollar is trading near a one-year low versus the euro on expectations the U.S. Federal Reserve will pause its interest-rate cycle after 16 straight increases.

``This market is hit, inch by inch, by a tsunami of money from institutional investors,'' Ross Norman, a director of TheBullionDesk.com, in Saffron Walden, U.K., said in an interview today. ``It's almost a buyers-only market.''

Gold for immediate delivery gained as much as $26.30, or 3.8 percent, to $716.70 an ounce. A close at that level would mark the biggest one-day advance since the 5.3 percent jump on Sept. 11, 2001. It traded at $712.05 as of 12:37 p.m. local time.

The dollar traded at $1.2895 versus the euro, from $1.2858 last night in New York.

The U.S. government said yesterday producer prices excluding food and energy rose 0.1 percent for a second month, less than forecast. Builders in the U.S. broke ground on the fewest homes in 17 months in April, a separate report showed. Investors are at their most bearish on the dollar in five years, according to a Merrill Lynch & Co. report yesterday.

Gold may rise to $800 an ounce this year as a store of value against declining currencies, Ian Telfer, chief executive officer of GoldCorp Inc., Canada's second-largest gold producer, said yesterday.

Dollar Support

``The dollar, and also the firmer oil price are clearly providing the underpinning for bulls coming back into the market,'' Norman said. Following Monday's sell-off, ``more investors are willing to take up the positions of those leaving this market.''

Gold surged almost 70 percent in the past year and climbed to a 26-year high of $730.40 on May 12, partly as investors bought the metal as an anti-inflationary hedge amid record oil prices. Bullion also gained as some investors purchased gold as a haven as the standoff between the U.S. and Iran over the latter's nuclear research program intensified.

Investors buy gold during periods of political tension because the metal is considered to hold its value better than other securities.

Crude Gains

Crude oil earlier today gained after Iranian President Mahmoud Ahmadinejad rejected European Union calls to suspend uranium enrichment, raising concern that shipments of crude from Iran, the world's fourth-largest producer, will by disrupted.

Crude oil for June delivery rose 15 cents to $69.68 a barrel on the New York Mercantile Exchange. Earlier it gained as much as 57 cents, or 0.8 percent, to $70.10.

Bullion may rise to as high as $1,000, Norman said. His forecast echoes that of Quantum Fund co-founder Jim Rogers. The former George Soros partner, who foresaw the start of the commodity rally in 1999, also predicted bullion may climb to $1,000 an ounce. Rogers said May 12 he ``wouldn't buy stocks now'' because the returns will be eclipsed by commodities.

Marc Faber, the money manager who told investors to bail out of U.S. stocks a week before the 1987 Black Monday crash, said he prefers holding gold over industrial metals including copper and zinc because bullion won't be affected by an economic slowdown. Investors shouldn't buy gold now because prices may fall further to $550 or $600 before resuming its rally, he said in an interview from New York yesterday.

Platinum Gains

Other precious metals for immediate delivery in London also rose. Silver gained 30 cents, or 2.2 percent, to $13.92 an ounce.

Platinum rose $40.50, or 3.1 percent, to $1,338.50 an ounce, close to the record $1,340 traded on May 12. The metal used in jewelry and car catalysts has jumped 38 percent this year. Palladium rose $12, or 3.2 percent, to $387.50, and has risen 52 percent this year.

The price gains on the platinum and palladium markets may deter jewelers from buying, Michael Widmer, an analyst with Macquarie Bank Ltd. in London, said in an emailed report today. Jewelry demand is set for a decline ``for a fourth year in a row,'' Widmer said.