NEWYORK Jan. 5 -- Gold prices surged the most in two months as the falling dollar boosted demand for precious metals as alternative investments. Silver jumped almost 4 percent.

The greenback slid as much as 0.8 percent against a basket of six currencies, extending last year's 4.2 percent slump. Gold futures rose 24 percent in 2009, reaching a record $1,227.50 an ounce on Dec. 3. The metal fell 7.3 percent in December as the dollar rose 4 percent, its biggest monthly gain in almost a year.

"You're seeing this pop in gold because the dollar is getting sold on the first day of trading" in 2010, said Matt Zeman, a LaSalle Futures Group Inc. metals trader in Chicago. "Those who held their longs through last month's correction are adding to their positions. Gold's behavior is indicative of a bull market."

Gold futures for February delivery climbed $22.10, or 2 percent, to $1,118.30 on the New York Mercantile Exchange's Comex unit, the biggest gain for a most-active contract since Nov. 3. In London, gold for immediate delivery advanced $20.03, or 1.8 percent, to $1,117.35 an ounce at 7:11 p.m. local time.

Silver futures for March delivery rose 61.8 cents, or 3.7 percent, to $17.463 an ounce. The metal jumped 49 percent in 2009, the biggest annual advance in 30 years.

London spot gold may average $1,150 this year and $1,300 in 2011, partly on demand from central banks and investors, according to Helen Henton, the head of commodity research in London at Standard Chartered Plc and the most accurate gold forecaster in a Bloomberg precious-metals survey a year ago. The price averaged about $974 last year.

Currency 'Devaluation'

The December drop in gold futures was the biggest since October 2008. The price gained for nine straight years, more than tripling in the past decade.

"We expect investors will remain dip-buyers, increasing exposure to offset devaluation of fiat currencies," James Moore, an analyst at London-based TheBullionDesk.com, said in a report.

The dollar slumped last year as the Federal Reserve kept its benchmark interest rate close to zero percent to spur economic growth following the longest recession since World War II. That bolstered demand for dollar-denominated raw materials from oil to coffee.

Investors poured about $60 billion into commodities last year, and should at least match that in 2010, according to a Barclays Capital survey.

Crude oil, corn, gold and palladium will advance as much as 17 percent this year, according to Bloomberg surveys and 2009's most accurate commodity forecasters.

Bullion held by the SPDR Gold Trust, the biggest exchange- traded fund back by the metal, rose 45 percent last year to 1,133.62 metric tons.