Gold futures closed at their highest levels in a week Tuesday, as weakness in the U.S. dollar steered investment demand toward the precious metals

Calling the dollar "terminally ill," Peter Grandich, editor of the Grandich Letter, said the currency is headed for a long-term retreat. "This in turn should be most beneficial to gold's long-term path – up," he said.

Gold for June delivery rose $2.90 to close at $653.90 an ounce on the New York Mercantile Exchange after trading as high as $664.50, while August gold, which is trading on higher volume, tacked on $3.10 to close at $660.50 an ounce following a high of $671.50.

Both contracts chalked up intraday highs and closed at levels they haven't seen since May 23.

"After being assured by the president (just last week) that Treasury Secretary John Snow was doing 'a fine job' and that the economy was doing also doing fine thanks to his efforts, the public [was] told today that Mr. Snow is resigning," said Jon Nadler, an investment products analyst at bullion dealers Kitco.com.

"What little confidence there may have been left in the dollar is now going to be tested again and again," he said.

The dollar remained lower against major currencies Tuesday but was off the lows of the day, after the White House's announcement that Henry Paulson, Goldman Sachs' chief executive, will become the next Treasury secretary.

Overall, "the crowded exit door of the administration is making for some rather nervous global investors when it comes to the prospects of the dollar and the U.S. equity markets," said Nadler. He added that "the ones who seem to sleep a little better these days are the holders of (some) gold."

From here, the "question is whether the entire precious metals complex will settle into a nice consolidation range or will it find a way to rally to new highs," said Dale Doelling, chief market technician at Trends In Commodities, adding that he's "betting on a consolidation at this point which could last a couple of weeks."

"The final outcome will be a breakout to new all-time highs in the gold market – although it may take some time for that to materialize," he said.

Meanwhile, taking its cue from gold, July silver added 34 cents to finish the session at $13.07 an ounce, a one-week closing high.

June palladium closed up 35 cents at $355.45 an ounce while July platinum ended at $1,291.40 an ounce, down $6.70.
Copper weakens

July copper fell back by 14.1 cents, or 3.7%, to close at $3.674 a pound, after ending last week 10% higher.

"While they don't ring bells at tops, some copper producers have begun to hear the ringing of hedging in their ears," said Grandich. "This is another signal copper's wild ride is in its final stages."

But Doelling argued that from a technical level, he does not see signs of a market collapse.

He pointed out that July copper closed out the year 2005 at $1.93 and rallied to a record intraday high of $4.04 on May 11. The market also fell briefly below the 20-day moving average and has since rallied well off the retracement lows, he said.

And at current prices, July copper is up 95% since Jan. 1, he said.

"These are hardly signs of a market ready to collapse," he said.

"I don't know if the trend will continue and copper will end up making new highs or if the end is near and the market goes back to $1," but the "trend is up, so trade with the trend," he said.

On the supply side, inventories of copper rose 117 short tons to 10,182 short tons as of late Friday, according to Nymex.

Gold inventories were down 97 troy ounces at 7.80 million troy ounces, while silver inventories were at 110.1 million troy ounces, down 2.4 million troy ounces.