By Nicholas Larkin and Pham-Duy Nguyen Oct. 20 (Bloomberg) -- Gold futures gained for the third straight session on speculation the dollar will extend a slump, fueling demand for the precious metal as an alternative investment. The dollar rebounded today after sliding to a 14-month low against a basket of six major currencies. Hedge funds and other large speculators hold their most-bullish position ever in futures. Before today, gold gained 20 percent this year as rising government debt spurs concern that inflation may accelerate. Futures reached an all-time high of $1,072 an ounce on Oct. 14. “The dollar is sick, and the only medicine to fix the dollar would be higher interest rates, and that’s not going to happen soon,” said Leonard Kaplan, the president of Prospector Asset Management in Evanston, Illinois. “So the markets are going to take the dollar lower and gold higher.” Gold futures for December delivery rose $1.40 to $1,059.50 at 10:47 a.m. on the Comex division of the New York Mercantile Exchange. Earlier, the price reached $1,069. The dollar has dropped more than 7 percent this year against the currency basket. The Federal Reserve has kept its benchmark interest rate at zero to 0.25 percent since December. Crude-oil costs, used by some investors as an inflation guide, climbed above $80 a barrel to a one-year high before erasing gains. “The market is telling us there’s going to be inflation,” Kaplan said. “People are being encouraged to buy gold.” Hedge-fund manager David Einhorn, who runs New York-based Greenlight Capital Inc., said he is buying gold to bet against the dollar and inflation. ‘Dental Procedure’ “Gold should do very well if there is a sovereign debt default or a currency crisis,” Einhorn said yesterday at a conference in New York. “Picking currencies is like choosing my favorite dental procedure.” The recent rally to a record may prompt some investors to make sales, Commerzbank AG said. “While many speculators had rushed to jump onto the bandwagon, an expanding minority of short-term investors is betting on falling prices,” the bank said in a report. Silver futures for December delivery rose 5 cents, or 3 percent, to $17.675 an ounce. The metal jumped 56 percent this year through yesterday.

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