Gold rallied on speculation a decline in the value of the dollar will boost the metal's appeal as an alternative investment.

Gold, sold in dollars, generally moves in the opposite direction of the U.S. currency, which fell today against the yen on speculation Japan may raise interest rates. Gold is still up 21 percent this year, while the dollar has fallen 6.4 percent against six major currencies.

``The dollar is still a big influence on gold,'' said Frank Lesh, a trader at FuturePath Trading LLC in Chicago. ``If you're watching gold, you need to watch the dollar.''

Gold futures for December delivery rose $2.60, or 0.4 percent, to $630.50 an ounce at 10:23 a.m. on the Comex division of the New York Mercantile Exchange. Prices gained 4.7 percent last week.

Bank of Japan Governor Toshihiko Fukui today pledged to ``take action in advance'' on monetary policy, suggesting the bank will increase its key interest rate from 0.25 percent. The central bank raised rates in July for the first time in almost six years. Federal Reserve officials have kept the benchmark U.S. interest rate unchanged at 5.25 percent for three consecutive meetings after a two-year tightening campaign.

``Holding the rate steady is giving us time to assess the full impact of our 17 rate increases and to see how economic conditions unfold over the near term,'' Cleveland Federal Reserve Bank President Sandra Pianalto said yesterday.


The Fed is trying to slow inflation without damaging an economy that expanded in the third quarter at the slowest pace since 2003.

A rate cut would weaken the dollar and send gold higher. Gold has made annual gains every year since 2001, more than doubling in the past five years. The dollar index rose last year, after three consecutive annual declines, as the Fed boosted rates to damp inflation.

``The Fed is neutral with a tightening bias,'' Lesh said. ``That's supportive for the dollar. But staying neutral isn't bad for gold.''

Still, gold has fallen 14 percent from a 26-year high of $732 on May 12. Some analysts remain skeptical gold can touch the May high again this year.

``Gold would still have to vault over $642 in order to yield a fresh sense of its year-end potential,'' said Jon Nadler, an investment-products analyst at Kitco Inc. ``After four solid weeks of gains, there may be a pause in the making.''

Gold has gained 8.9 percent since Oct. 6.