By Nicholas Larkin and Glenys Sim Dec. 16 (Bloomberg) -- Gold gained in New York and London as a pause in the dollar’s rally increased demand for the metal as an alternative investment. The U.S. Dollar Index, a six-currency gauge of the greenback’s value, dropped as much as 0.4 percent after jumping to the highest level since Oct. 2 yesterday. Futures have declined 7.8 percent since reaching a record $1,227.50 an ounce on Dec. 3 as the index increased 2.9 percent in the period. The Federal Open Market Committee ends its two-day meeting today. “If the dollar gives up gains, then gold clearly profits,” said Wolfgang Wrzesniok-Rossbach, head of marketing and sales at Hanau, Germany-based Heraeus Metallhandels GmbH. “We have now seen gold come off from its highs. There’s been some bargain hunting.” Bullion futures for February delivery on the New York Mercantile Exchange’s Comex unit added $8.80, or 0.8 percent, to $1,131.80 an ounce by 8:40 a.m. local time. Gold for immediate delivery in London was 0.5 percent higher at $1,130.60. The metal increased to $1,134 an ounce in the morning “fixing” in London, used by some mining companies to sell production, from $1,122 at yesterday’s afternoon fixing. All 98 economists in a Bloomberg survey expect the Fed will keep the target lending rate at zero to 0.25 percent when it releases its statement at the close of today’s meeting. The central bank will probably discuss how to eventually withdraw unprecedented programs to revive credit, economists said. Change in Sentiment “The market will be looking for any indication of an earlier liquidity withdrawal or interest rate rises given recent bullish U.S. data,” Andrey Kryuchenkov, a VTB Capital analyst in London, said today in a report. “It is too early to turn completely bullish on the greenback, but sentiment is certainly improving.” Bullion futures have advanced 28 percent this year as low U.S. interest rates drove down the dollar and on expectations inflation would accelerate. Consumer prices rose 0.4 percent in November on higher energy costs after a 0.3 percent gain in the previous month, the Labor Department said today. Producer prices climbed 1.8 percent last month, the government said yesterday, more than twice the median estimate. “Traditionally, higher inflation is supportive of gold prices, especially if monetary policy is perceived as easy,” said James Steel, an analyst at HSBC Securities. Still, “potential for further U.S. dollar gains may undermine gold,” he said. Palladium Forecast Silver for March delivery in New York rose 0.7 percent to $17.585 an ounce. Platinum for January delivery added 0.2 percent to $1,455.50 an ounce, and palladium for March delivery was 1.1 percent higher at $370 an ounce. Royal Bank of Scotland Group Plc raised its 2010 average palladium estimate by 14 percent to $400 an ounce, according to a report dated yesterday. BNP Paribas SA raised its 2010 forecast for platinum prices by 4.4 percent to $1,410 an ounce and said demand will outstrip supply by 410,000 ounces next year. “We expect platinum to remain supported by investment and jewelry demand in 2010,” BNP Paribas analyst Anne-Laure Tremblay said in a report dated yesterday. “Industrial and notably autocatalyst demand, while recovering in 2010 on the back of restocking, are unlikely to revert back to pre-crisis levels.” To contact the reporters on this story: Glenys Sim in Singapore at gsim4@bloomberg.net; Nicholas Larkin at nlarkin1@bloomberg.net

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