Gold enjoys long rally on Greek debt worries

Gold rose, capping the longest rally since January, on demand for a haven from the euro amid concerns that Greece's debt crisis won't be resolved.

The euro slid as much as 1.1 per cent against the dollar. Greek Prime Minister George Papandreou set a one-week deadline for the European Union to craft a financial-aid mechanism for the country. Germany has expressed skepticism on a rescue package. Gold priced in euros reached a record on March 5.

"We're seeing a movement to gold as a reserve currency," said Tom Hartmann, an analyst at AltaVest Worldwide Trading in Mission Viejo, California. "There's some mistrust and uncertainty about paper currencies."

Gold futures for April delivery rose $US3.30, or 0.3 per cent, to $US1127.50 an ounce on the Comex in New York, up for the fourth straight day.

Moody's Investors Service said this week that the US and the UK have moved closer to losing their AAA credit ratings.

"There are problems with the euro and the dollar," said Hartmann. "The US faces a downgrade in our debt rating. Those concerns are keeping gold elevated."

Gold has climbed 2.3 per cent this week. The metal is up 27 per cent in the past year, and the dollar has dropped 5.2 per cent against a basket of six major currencies.

"Gold is quietly, at the edge, becoming the world's second reservable currency, supplanting the euro and rivaling the dollar," Dennis Gartman, a Suffolk, Virginia-based economist and hedge-fund manager, said in his Gartman Letter. "The trend shall continue months, if not years, into the future."

Inflation Muted

Earlier, gold dropped as much as 0.5 per cent. The cost of living in the US was unchanged in February, underscoring the Federal Reserve's forecast that inflation will remain low as the economy recovers.

"We're not in for inflation, which drives gold bulls," said Leonard Kaplan, the president of Prospector Asset Management in Evanston, Illinois. "You can't have inflation with a bad economy."

Silver futures for May delivery fell 10.1 US cents, or 0.6 per cent, to $US17.422 an ounce, ending a three-day rally.

Platinum for April delivery dropped $US4.60, or 0.3 per cent, to $US1631 an ounce on the New York Mercantile Exchange. Palladium for June was little changed at $US478.75 an ounce.