By Nicholas Larkin and Kim Kyoungwha Jan. 4 (Bloomberg) -- Gold rose for a third day in London as a weaker dollar spurred purchases after the metal’s biggest monthly drop since October 2008. Palladium climbed to a 17-month high. Bullion slumped 7 percent last month as the U.S. Dollar Index, a six-currency gauge of the greenback’s value, gained 4 percent. The measure lost as much as 0.5 percent today. Gold, which slipped to a seven-week low on Dec. 22, tends to move inversely to the dollar. “Good demand has been seen below $1,090” an ounce, James Moore, an analyst at London-based TheBullionDesk.com, wrote in a report today. “We expect investors will remain dip buyers, increasing exposure to offset devaluation of fiat currencies.” Gold for immediate delivery climbed $19.25, or 1.8 percent, to $1,116.57 an ounce at 11:52 a.m. local time. The metal reached an all-time high of $1,226.56 last month. Gold for February delivery rose 1.9 percent to $1,117.10 an ounce on the New York Mercantile Exchange’s Comex division. The metal increased to $1,113 an ounce in the morning “fixing” in London, used by some mining companies to sell production, from $1,104 at the morning fixing on Dec. 31. No afternoon fixing took place on the last day of 2009. Ninth Annual Gain December’s drop was the first in four months. Bullion gained 24 percent in 2009 as investors sought to protect their wealth against currency debasement and a potential increase in inflation. The annual advance was the ninth in a row and the biggest since 2007. “We may see some rebound in gold,” said Ellison Chu, a manager at Standard Bank Asia Ltd. in Hong Kong. “The market was thin last month and price declines were exaggerated. I still believe gold will continue to climb.” Gold may average $1,150 an ounce this year and $1,300 in 2011, partly on demand from central banks and investors, according to Helen Henton, head of commodity research in London at Standard Chartered Plc and the most accurate gold forecaster in a Bloomberg precious-metals survey a year ago. The metal for immediate delivery averaged about $974 an ounce last year. Bullion will gain on “central-bank buying, the structural change in interest for gold from retail investors, and in the second half the resumption of the weakening trend in the dollar,” Henton said on Dec. 29. Interest Rates The dollar slumped last year as the Federal Reserve kept benchmark interest rates near zero since December 2008 to spur growth after the worst financial crisis since World War II. That spurred demand for dollar-denominated raw materials from oil to coffee by making them cheaper in terms of other currencies. Investors poured about $60 billion into commodities through index-tracking and exchange-traded funds and medium-term notes last year, and should at least match that in 2010, according to a Barclays Capital survey. Raw materials may return more than financial assets for the first time in three years as the global economy rebounds, according to Bloomberg surveys and 2009’s most accurate commodity forecasters. Oil, corn, gold and palladium will advance as much as 17 percent this year, the analysts said. Among other precious metals for immediate delivery in London, platinum gained 2.6 percent to $1,501 an ounce and silver added 1.7 percent to $17.17 an ounce. Palladium soared as much as 4 percent to $423.75 an ounce, the highest price since July 2008, and was last at $420.35. To contact the reporters on this story: Kyoungwha Kim in Singapore at kkim19@bloomberg.net; Nicholas Larkin in London at nlarkin1@bloomberg.net

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