Gold Rises to 1-Month High as Dollar's Decline May Boost Demand

July 6 -- Gold rose to the highest price in a month on speculation that a drop in the value of the dollar against the euro will boost demand for the precious metal.

Gold, which often moves in the opposite direction of the dollar, has gained 23 percent this year. The dollar has fallen 6.3 percent against a basket of six major currencies. The U.S. currency fell today on speculation the Federal Reserve will trail Europe and Japan in raising interest rates.

``The biggest component of gold's rally will be the concentration on the lower dollar, which will allow gold to come back,'' said Frank McGhee, head metals trader at Integrated Brokerage Services LLC in Chicago.

Gold futures for August delivery rose $6.60, or 1.1 percent, to $636.30 an ounce on the Comex division of the New York Mercantile Exchange, after reaching $637, the highest since June 6.

Gold has gained 8 percent in the past week on signs the Federal Reserve may halt two years of U.S. interest-rate increases, weakening the value of the dollar.

European Central Bank President Jean-Claude Trichet and Bank of Japan Governor Toshihiko Fukui signaled they may raise interest rates in the coming weeks. Fed officials on June 29 suggested they may pause after raising rates 17 consecutive times since June 2004.

``The gold market has made some pretty good gains based on what action the Fed is going to take,'' said Stephen Platt, a commodities analyst at Archer Financial Services Inc. in Chicago. ``A weaker dollar tends to attract more buyers overseas.''

Inflation Hedge

Some investors are also buying gold as a hedge against inflation after oil reached a record $75.40 a barrel yesterday. Gold futures rose to $873 an ounce in 1980, the highest ever, after oil costs more than doubled and consumer prices reached 12 percent.

``The market is eyeing $75 oil again,'' McGhee said. ``Ultimately, gold is going higher. We're going to see $730 highs again this year.''

Gold reached a 26-year high of $732 on May 12 and then plunged to $546.40 on June 14 as the dollar rallied on speculation the Fed would keep raising interest rates to rein in inflation.

Some investors may sell after gold reached the highest level in a month, Platt of Archer Financial said.

``At these levels, it's going to be harder and harder to attract interest,'' Platt said. ``You are seeing some profit taking in this area.''