Gold Heads for Fourth Weekly Gain on Inflation Concern, Dollar

By Iris Leung and Feiwen Rong

July 11 (Bloomberg) -- Gold headed for a fourth weekly gain on concern high commodity prices and a weakening U.S. dollar are likely to spur more demand for the precious metal as hedge against inflation.

Gold was boosted after crude oil climbed 4 percent yesterday as Iran test-fired more missiles in the Persian Gulf and a Nigerian militant group said it will end a cease-fire this week. Aluminum prices rose to a record yesterday while lead prices jumped more than 10 percent. The dollar headed for a weekly loss against the euro.

``We saw a bit profit-taking this morning, but gold looks supported between $938-$940 as all the factors are in favor of the metal right now,'' K C Wong, trader at Standard Bank Asia Ltd., said today by phone from Singapore. ``The U.S. dollar in the long-term will have to weaken against other currencies, while the inflation fear will be here for a while.''

Bullion for immediate delivery traded at $942.29 an ounce at 9:29 a.m. in Singapore, down from $947.66 yesterday in New York. Silver traded little changed at $18.2900 an ounce.

Signs of a weakening U.S. economy may deter the Federal Reserve from increasing borrowing costs this year, diminishing the allure of dollar-denominated assets. The dollar traded at $1.5789 against euro at 9:31 a.m. in Singapore.

The dollar is also under pressure as a report today may show U.S. consumer confidence fell to the lowest level in 28 years, adding to concern the economic slowdown will be prolonged. Crude oil in New York traded at $141.61 a barrel at 9:33 a.m. in Singapore.

`Critical Factor'

``Oil has become the critical factor driving up the gold prices.'' Dick Poon, manager of precious metals trading desk at Heraeus Ltd., said today by phone. ``Political tensions in Iran and instability in the stock market have brought capital into commodities.''

Gold for August delivery was little changed at $943.10 an ounce in after-hours electronic trading on Comex at 9:33 a.m. Hong Kong time, while gold for December delivery traded in Shanghai gained 1.1 percent to 207.92 yuan a gram ($945 an ounce) at the same time.

Gold for June 2009 delivery rose 1.3 percent to 3,270 yen a gram ($950 an ounce) on the Tokyo Commodity Exchange at 10:35 a.m. local time.

To contact the reporters for this story: Iris Leung in Hong Kong at ileung7@bloomberg.net; Feiwen Rong in Singapore at frong2@bloomberg.net