Gold Futures Advance as Dollar Weakens

CHICAGO (July 25) Gold futures settled higher on Thursday, helped by a weaker dollar and easing worries about the longevity of the U.S. monetary stimulus measures.

Gold for August delivery, the most active contract, settled $9.30, or 0.7%, higher, at $1,328.80 a troy ounce on the Comex division of the New York Mercantile Exchange.

The dollar retreated against a basket of foreign currencies, bolstering gold's allure to foreign buyers by making the dollar-priced metal less expensive in their home currency terms.

"Gold is benefiting from a weaker dollar," said Matthew Zeman, senior market strategist at Kingsview Financial.

Mr. Zeman added that gold prices also drew strength from higher oil prices, as rising energy costs drive up inflationary pressures.

Crude oil for September delivery settled Nymex trade at $105.49 a barrel, and is trading close to its highest level in nearly two years.

Gold is widely considered a hedge against inflation as it tends to keep its value better than other assets during periods of rising consumer prices.

Gold traders also breathed a sigh of relief after the Labor Department reported an uptick in weekly jobless claims. The weekly measure of layoffs rose by 7,000, to a seasonally adjusted 343,000 in the week ended July 20, signalling a rocky recovery in the labor market.

Gold traders closely follow employment data for clues about future monetary policy. Federal Reserve Chairman Ben Bernanke has repeatedly stated that the central bank would look to economic data for guidance on the timing and pace of reducing monetary stimulus measures.

Gold traders worry that tapering off the Fed's $85-billion-a-month bond purchasing program will usher in higher interest rates. Gold is a zero-yielding asset that struggles to compete with bonds and equities when interest rates are higher.