Automated Radio Archiving Test

By Pham-Duy Nguyen

April 4 (Bloomberg) -- Gold and silver prices rose in New York on speculation that a decline in the dollar will increase the appeal of precious metals as an alternative to the U.S. currency.

Gold generally moves in the opposite direction of the dollar, which dropped the most in a week against the euro on signs of an economic slowdown in the U.S. Gold has climbed 6.2 percent this year and silver is up 5.5 percent, while the dollar has fallen 1.3 percent against the euro.

``The currencies are higher against the dollar, and that's driving up gold,'' said Marty McNeill, a trader at R.F. Lafferty Inc. in New York.

Gold futures for June delivery rose $7.70, or 1.2 percent, to $677.40 an ounce on the Comex division of the New York Mercantile Exchange. Prices earlier touched $681.10, the highest since Feb. 27.

Gold surged after Iranian President Mahmoud Ahmadinejad said Iran ``will never accept'' any trespass into its territory, even as he pledged to release 15 captured U.K. sailors and marines. Before today, gold had gained 1.9 percent since March 23, when the Britons were captured in the waters separating Iran and Iraq.

Gold breached $676.80, a so-called resistance level, triggering more demand, said Nick Ruggiero, a gold trader at Eagle Futures in New York.

``Once gold popped over $676.80, it caught some momentum,'' Ruggiero said. ``If you were short, that's where you wanted to get out.''

Fund Demand

A push above last week's high of $672.90 will attract investors, said Frank Lesh, a trader at FuturePath Trading LLC in Chicago.

``We'll see the funds come back and buy,'' Lesh said. ``There's still a perception that the dollar is going to weaken this year, and it has, but it's been very gradual. That keeps investors long in gold.''

The dollar dropped against the euro after reports showed factory orders in February and U.S. service industries grew less than economists had forecast.

Gold may climb to $740 an ounce in the second half, Philip Klapwijk, executive chairman of London-based GFMS Ltd. said in the research company's 40th annual report on the metal.

Gold-mining companies reduced production to a 10-year low of 2,471 metric tons in 2006, GFMS said.

``Gold production is at the lowest in 10 years and that's lending support to the market,'' said Matt Zeman, a metals trader at LaSalle Futures Group in Chicago. ``There's a finite supply, but there's going to be ongoing worldwide demand for gold.''

Silver for May delivery rose 19 cents, or 1.4 percent, to $13.62 an ounce. Prices are up 16 percent in the past year.

A futures contract is an obligation to buy or sell a commodity at a set price for delivery by a specific date.

To contact the reporter on this story: Pham-Duy Nguyen in Seattle at pnguyen@bloomberg.net .

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