Gold rallies above $800 an ounce as dollar falls

By Polya Lesova, MarketWatch

NEW YORK (MarketWatch) -- Gold futures rallied above $800 an ounce Wednesday, as rising oil prices and weakness in the U.S. dollar propelled demand for the precious metal.

Gold for February delivery surged $34.60 to end at $808.80 an ounce on the New York Mercantile Exchange. This was gold's highest closing level since Nov. 28.

Earlier Wednesday, the contract hit an intraday high of $813.80 an ounce.

"The bounce in oil prices is likely lending support, as is continuing robust physical demand internationally," said Mark O'Byrne, executive director of Gold & Silver Investments Ltd.

Gold gained $4.90 Tuesday to end at $774.20 an ounce on the New York Mercantile Exchange.

Oil futures rallied Wednesday, but ended below their intraday highs, as the market weighed a build in U.S. crude and gasoline supplies against speculation that Saudi Arabia may implement a big production cut in January. Rising oil prices tend to increase demand for gold as a hedge against inflation. See Futures Movers.

The Reuters/Jefferies CRB Index (CRB:) , a benchmark gauging the prices of major commodities, rose 2.9% to 221.92 points.

Dollar weakens

In the currency markets, the U.S. dollar fell against most major currencies, but rose against the Japanese yen, as progress toward a $15-billion federal bailout for the nation's auto industry buoyed risk appetite among investors.

The dollar index (DXY , , ) , a measure of the greenback against a trade-weighted basket of six currencies, fell 0.5% to 85.36 in recent trade. See Currencies.

Dollar weakness typically boosts dollar-denominated commodities such as gold.

On Wall Street, U.S. stocks rose on optimism about a bailout of the U.S. auto industry. See Market Snapshot.

House Democrats said they were planning to hold a vote later Wednesday on $15 billion in bridge loans for the struggling U.S. auto industry after they reached agreement on the aid with the White House, even as some Senate Republicans said they were wary of the plan and threatened to block it. Read more.

"The notably weaker dollar and a steady equity market helped to offset continued gloom, as Rio Tinto announced cuts in its work force, European industrial output crumbled in October" and China's exports and imports shrank unexpectedly, said analysts at Sucden Financial in a research note.

China's exports declined in November, the first such contraction in more than seven years, underscoring the severity of the global slowdown and painting a bleak outlook for the sustainability of mainland exports in the months ahead.

Exports fell 2.2% from the year earlier after they rose 19.2% in October from the year earlier, according to data released Wednesday by the General Administration of Customs. Imports fell 17.9% after rising 15.6% in October on year. Read more.

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