Dollar Pullback Props Up Gold

February-dated bullion contracts close up $3.40 at $630.30 an ounce.
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Updated from 11:41 a.m. EST

A weaker dollar gave gold a boost Wednesday as news that a foreign government is diversifiying its holdings hit the greenback.

February-dated bullion contracts closed up $3.40 at $630.30 an ounce on the Comex division of the Nymex. The exchange-traded funds that hold the metal were also rising, with the

streetTRACKS Gold Shares

(GLD) - Get Report

and the

iShares COMEX Gold Trust

(IAU) - Get Report

both ahead by about half a percent.

Reports that the United Arab Emirates would diversify its foreign currency reserves by purchasing more euros provided the currency-moving catalyst. Traders viewed the move as symptomatic of a wider trend and quickly bid up the euro.

"By itself, the UAE's shift is small change in the foreign-exchange market," Tony Crescenzi, chief bond market strategist at Miller Tabak and a

RealMoney.com

contributor, wrote in a published article. But "the UAE's shift is another in a string of actions taken by the world's central banks" to diversify away from the dollar.

The euro was trading at $1.3127, up from $1.3096 late Tuesday. The dollar was trading at 118.705 yen, down from 119.15 previously. Prices for gold and the dollar tend to move in opposite directions.

Data showing a better-than-expected housing market did little to stop the dollar weakness.

The Commerce Department says new home sales totaled 1.047 million in November, beating the consensus forecast of 1.015 million. Revised sales for October were 1.013 million. The strength of the housing market is viewed by many economists as critical to the health of the U.S. economy.

Back in the gold arena, the miners were doing well as buoyant metal prices lifted the sector. The

Philadelphia Gold and Silver Sector Index

ended at 142.07, up nearly 2%.

"It's looks to me as though we bottomed in the gold stocks last Friday," says Mike Swanson, a Virginia-based hedge fund manager and editor of the

Wall Street Window

blog. He added that if the Philadelphia Gold and Silver index closed above 141.5, which it did, he would "take that as confirmation that it's put in a

technical bottom."

Turning to the base metals, copper was getting a boost. March-dated Comex contracts closed up 3.6 cents at $2.914 a pound, benefiting from the weak dollar, although not everyone was convinced the lift will continue.

"We would not be chasing this current bounce, preferring to wait until it can prove its sustainability," writes Edward Meir, an analyst at commodity brokers Man Financial, in a daily markets brief.

Diversified miners

Anglo American

(AAUK)

and

Rio Tinto

(RTP) - Get Report

both gained more than 2%, benefiting from the improved metal prices.