Gold Rises, Halting Two-Day Drop, as Weak Dollar Boosts Demand

July 1 (Bloomberg) -- Gold gained the most in a week, halting a two-day slide, as a weaker dollar boosted the metal’s appeal as an alternative investment.

The dollar fell as much as 1.1 percent against the euro as a report from Automatic Data Processing Inc.’s Employer Services unit showed U.S. companies cut 473,000 jobs last month, more than forecast. Gold typically rises when the dollar falls because some investors buy the precious metal to protect value when the world’s reserve currency weakens.

“With the amount of money that has been put into the banking system, you do have an inflation potential,” Hans Goetti, who oversees about $10 billion as LGT Bank in Liechtenstein (Singapore) Ltd.’s chief investment officer, said in a Bloomberg Television interview.

Gold futures for August delivery rose $13.90, or 1.5 percent, to $941.30 an ounce on the New York Mercantile Exchange’s Comex unit. Bullion for immediate delivery gained $14.16, or 1.5 percent, to $940.76 an ounce at 8:01 p.m. in London.

“In the long term, gold as a currency will go up because gold is not backed by credit,” Goetti said. “We are long-term bulls on gold. In inflation-adjusted terms, we are still way below where we were in 1980.”

June employment figures are set to be reported tomorrow by the U.S. Department of Labor. The government and most U.S. markets will be shut on July 3 ahead of a July 4 holiday.

Near-Term Outlook

“Near term, it’s a bit of a different story,” Goetti said. “There is a lot of resistance at around the $1,000 level. We could see a move to $1,000, maybe a pullback then. There is always a threat of central banks selling, IMF selling.”

The metal rose to $938.25 an ounce in the afternoon “fixing” in London, the price used by some mining companies to sell their output, from $931.50 in the morning.

Investment in the SPDR Gold Trust, the biggest exchange- traded fund backed by bullion, declined by 5.19 metric tons to 1,120.55 tons as of yesterday, the company’s Web site showed.

“Investors are slowly and steadily shifting their investments into high-yielding assets, like currencies and equities,” Pradeep Unni, a Richcomm Global Services analyst in Dubai, said in a note.

Silver for September delivery rose 16 cents, or 1.2 percent to $13.760 an ounce in New York. Silver surged 22 percent this year and gold gained 6.5 percent.