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Gold rallied on Thursday, helped by a weaker US dollar, a factor that has helped propel gold to a record high earlier this month and its ninth annual gain in as many years. The gain reversed a slide in bullion prices on Wednesday, when investors ditched gold as the dollar advanced on positive outlooks for US business activity and housing.
With gold looking to end the year up by around a quarter, investors will turn to the prospects for 2010, which are likely to largely hinge on how quickly the US Federal Reserve moves to tighten monetary policy. Eagle Mining analyst Keith Goode expects bullion to continue to find support from investors unconvinced the US dollar was firmly on the mend.
"If you don't buy the dollar story, and a lot of people don't, then gold remains a safe investment," Goode said. He said gold was likely to trade between $1,200-$1,300 an ounce into the start of 2010, then go higher. In 2009, gold reasserted its reputation as a safe-harbour investment when the US dollar is put on the defensive, attracting more investors than in previous crisis periods.
Gold bugs assert bullion's ascent will continue to outpace deterioration in the dollar next year, noting the dollar is down only 4 percent this year against a basket of major currencies versus gold's 25 percent rise. Others aren't so sure. Key measures of safe haven demand for gold such as inflows into Exchange Traded Funds (ETFs) have been weak in the last two quarters, noted Sydney-based Resource Capital Research.
"We consider that there is a high degree of speculative momentum buying behind gold's recent surge, and without support from demand fundamentals the near-term risk for gold at the moment remains very much on the downside," it said in a recent report.
Gold's 2009 gains pale against some other commodities: oil is heading for a 78 percent annual gain and copper's 142 percent rise seems to make it the one of the best performing of major commodities this year.
Spot gold was quoted at $1,097.00 an ounce at 0535 GMT versus New York's notional close of $1,092.55, 10 percent below a record of $1226.10 hit on December 3. A market holiday in Japan was contributing to light volumes, which was boosting volatility.
US February gold futures rose $6 to $1,098.50 an ounce in electronic trading after settling down $5.60 at $1,092.50 on the COMEX division of the New York Mercantile Exchange. The world's largest bullion-backed exchange-traded fund, New York's SPDR Gold Trust, reported an inflow of just under one tonne on Tuesday.

Copyright Reuters, 2010

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