Gold Futures Rebound on Interest-Rate Outlook; Silver Advances
Pham-Duy Nguyen

June 24 (Bloomberg) -- Gold rebounded on speculation the Federal Reserve is unlikely to raise U.S. borrowing costs anytime soon, weakening the dollar and boosting the appeal of the metal as an alternative investment. Silver also gained.

The dollar fell against the euro before the Fed's meeting on interest rates today and tomorrow. Gold reached a record $1,033.90 an ounce on March 17 after the Fed slashed rates over six months, sending the dollar to an all-time low against the euro.

"There's some buying ahead of the Fed meeting," said Frank Lesh, a trader at FuturePath Trading LLC in Chicago. "A lot of people don't think the Fed can raise rates in this environment. They're stuck between fighting inflation and the need to shore up the economy. The dollar is in a range, and that keeps gold trading in a range."

Gold futures for August delivery rose $5.60, or 0.6 percent, to $892.80 an ounce at 11:38 a.m. on the Comex division of the New York Mercantile Exchange. The price fell 1.8 percent yesterday after gaining 3.5 percent last week.

Silver futures for July delivery climbed 3.5 cents, or 0.2 percent, to $16.825 an ounce. Before today, the price advanced 13 percent this year, while gold climbed 5.9 percent.

The benchmark federal-funds rate is at 2 percent after seven cuts from 5.25 percent since mid-September. Gold gained 39 percent from Sept. 17 to March 17.

Investors purchased gold as a housing slump and credit crisis threatened to push the U.S. economy into recession, while commodities soared to records.

Housing Slump

Home prices in 20 U.S. metropolitan areas plunged 15 percent in April and have dropped every month since January 2007, according to a private survey by S&P/Case-Shiller. The latest decline from a year earlier was the biggest since the group began keeping records in 2001.

The UBS Bloomberg Constant Maturity Commodity Index rose to a record 1,668.25 on June 20 and has gained 29 percent this year.

"People are pretty confident that the Fed is not going to lower interest rates again, and that may be the key to fighting inflation," said Tom Hartmann, a commodity broker at Altavest Worldwide Trading Inc. in Mission Viejo, California. "Eventually, when the Fed starts to raise rates, gold could break down."

To contact the reporter on this story: Pham-Duy Nguyen in Seattle at pnguyen@bloomberg.net.