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Gold Rises as Gain in Oil Prices Increases Inflation Concerns

Gold in New York climbed for the second session

Gold in New York climbed for the second session in three as soaring oil prices boost the precious metal's appeal as a hedge against inflation.

Crude oil gained for the eighth session in a row to a record $49.74 a barrel in New York amid concern that Nigerian rebels may target production. U.S. inventory fell after Hurricane Ivan reduced supplies from the Gulf of Mexico. Gold rose 1.8 percent in the past three weeks, partly because oil surged 11 percent.

``There has to be some inflationary expectation at some point'' with the gains in oil prices, said David Durrant, New York- based senior economist at Julius Baer Investment Management LLC, part of the Bank Julius Baer & Co., which manages about $100 billion, including bullion. ``How far can we push the envelope here and still talk about no inflation or very low inflationary expectations? That will give gold a boost.''

Gold futures for December delivery rose $1, or 0.2 percent, to $410.70 an ounce on the Comex division of the New York Mercantile Exchange. Prices reached a one-month high of $414 on Sept. 23 and gained 0.5 percent last week.

A futures contract is an agreement to buy or sell a commodity at a specified price and date.

Consumer prices this year rose at a 3.7 percent annual rate through August, compared with an increase of 2.4 percent a year earlier.

Gold may rise for a fourth straight week as oil prices gained, a Bloomberg survey showed. Twenty-five of 40 traders, investors and analysts surveyed from Sydney to New York on Sept. 23 and Sept. 24 advised buying gold. Seven recommended selling the metal, and eight were neutral.

Speculators Boost Holdings

Speculators increased holdings in futures to the highest this month as oil prices rose, reports from the U.S. Commodity Futures Trading Commission showed.

Hedge funds and other large speculators had bought 64,327 more contracts than they had sold as of Sept. 21, up 17 percent from the week before, the commission reported Sept. 24.

Net purchases still were less than half of the 144,253 contracts that speculators had in the week ended April 6 when prices reached a 15-year high of $433 an ounce. The amount that week was the largest since at least February 1983.

``The fund position is still relatively small,'' N. M. Rothschild & Sons (Australia) Ltd. said in a report today. ``This still leaves a lot of room for the speculative positions to increase.''

European central banks, which in March increased a limit on annual gold sales, may sell less than the 500 tons allowed because prices might rise and the dollar may weaken, some analysts said.

Finance ministers and central bankers from 184 nations will meet in Washington this weekend for the annual meeting of the World Bank and the International Monetary Fund.