Weak Dollar Boosts Gold

Updated from 12:40 p.m. EST

Gold futures rallied Tuesday on a weaker dollar and renewed buying interest from hedge funds.

April-dated bullion contracts added $2.60 to close at $658.70 an ounce on the Comex division of the Nymex. The PowerShares DB Gold(DGL Quote) exchange-traded fund, which tracks the futures market, was also moving higher, up 0.7%.

The bullion ETFs, iShares Comex Gold Trust (IAU Quote) and streetTracks Gold Shares (GLD Quote), were gaining too, each recently ahead by 0.7%.

"Escalating oil prices are pressuring the U.S. dollar," writes Ashraf Laidi, chief foreign exchange analyst at CMC Markets in New York, in a market brief. The "rebound of the past three weeks raises risks that the U.S. consumer may grow constrained due to soaring fuel costs."

An extended period of reduced household spending would likely weaken the economy and bring closer the timing of any future interest rate cuts by the Federal Reserve, thus reducing the appetite for dollars by yield-seeking investors.

Gold tends to move inversely in value with the greenback. The dollar was recently buying 120.13 yen, down from 120.41 late Monday. One euro was buying $1.2981 vs. $1.2928 previously. Crude oil futures tacked on 14 cents to $58.88.

Also helping the rally was renewed buying interest from hedge funds wanting to establish new positions after bailing late last week, says George Gero, a vice president of global futures for RBC Capital Markets in New York.