Gold Climbs to Two-Month High as Dollar Tumbles; Silver Gains

Aug. 3 (Bloomberg) -- Gold climbed to the highest in almost two months as a weaker dollar boosted demand for the metal as an alternative investment. Silver reached a seven-week high.

The U.S. Dollar Index, a six-currency gauge of the greenback’s strength, slid as much as 1.1 percent to a 2009 low as gains in manufacturing in the U.S., China and the U.K. reduced demand for a haven. Gold tends to rise when the dollar falls. The metal touched $1,007.70 an ounce, this year’s high in New York, on Feb. 20.

“This week will be a battle between a chart that appears bullish and fundamental indications which are bearish,” Tom Pawlicki, an MF Global Inc. analyst in Chicago, said in a note. “The market has seen outflows from gold ETFs, disappointing physical demand, low inflation potential and poor economic growth,” he said, referring to exchange-traded funds.

Gold futures for December delivery climbed $3, or 0.3 percent, to $958.80 an ounce on the New York Mercantile Exchange’s Comex division, after earlier touching $966.90, the highest for a most-active contract since June 5.

“Dollar weakness and a recovery in risk appetite could push the metal higher,” Pradeep Unni, an analyst at Richcomm Global Services in Dubai, said in a report. The dollar index fell for a third straight session after July’s 2.2 percent drop.

London Prices

Bullion for immediate delivery in London rose $2.65, or 0.3 percent, to $956.65 an ounce at 7:27 p.m. local time.

Gold advanced to $959.75 an ounce in the London afternoon “fixing,” the price used by some mining companies to sell their output, from $954.25 in the morning fixing.

The weakening dollar and “positive economic sentiment” make a bullish case for gold, David Wilson and Stephanie Aymes, Societe Generale analysts, said today in a note. Wilson and Aymes also said they’re bullish on silver because of a rally in base metals and continuing investor interest.

Silver for September delivery rose 31.2 cents, or 2.2 percent, to $14.252 an ounce in New York. Earlier, the metal touched $14.465, the highest for a most-active contract since June 15.

Equity indexes climbed from New York to Hong Kong as data showed manufacturing expanded in China by the most since July 2008, while in the U.S., factory activity declined by less than forecast. For the first time in more than a year, manufacturing expanded in the U.K. last month, industry data showed today.

IMF Gold Sales

The International Monetary Fund probably will sell 200 metric tons of gold annually starting next year, “potentially weighing on prices,” Citigroup Inc. said in a July 31 report. Gold will fall to $850 an ounce in the second half of 2010, Alan Heap, a Sydney-based Citigroup analyst, said in the report.

Investment in the SPDR Gold Trust, the biggest exchange- traded fund backed by bullion, declined 1.3 percent last week to 1,072.9 tons on July 31, the company’s Web site showed.

“Some recent redemptions of gold ETFs represented selling” and “some gold held via ETFs was switched into allocated physical gold,” John Reade, UBS AG’s head metals strategist in London, said today in a report. “The best we can say is that there is clearly no surge of new inflows.”

Hedge-fund managers and other large speculators trimmed bets on rising gold prices in the week ending July 28, according to U.S. Commodity Futures Trading Commission data. Net-long positions fell 0.3 percent to 172,771 Comex contracts, the Washington-based commission said.