Gold Rises on Speculation Dollar May Fall, Inflation Rising

By Feiwen Rong and Iris Leung

July 17 (Bloomberg) -- Gold gained in Asia, after tumbling the most in more than three weeks yesterday, as investors sought a haven on concern the dollar may decline and inflation increase.

Bullion has gained 9.2 percent in the past month as the dollar fell and financial market instability sent the S&P 500 Index 8 percent lower during the same period. The dollar was little changed against the euro before a report later today that may show U.S. housing starts declined to a 17-year low.

``It seems that gold is well-supported at $960 an ounce,'' said William Kwan, bullion director at Gold Capital Management Pte in Singapore by phone. ``But as it is July already, hedge funds have started selling August futures and buying December ones, making the market more volatile in the short term.''

Bullion for immediate delivery rose 0.4 percent to $963.42 an ounce at 2:50 p.m. in Hong Kong after yesterday falling 1.8 percent, the biggest decline since June 23. Silver advanced 0.5 percent to $18.8650 an ounce.

Gold has dropped 2.5 percent from a four-month high of $988.02 an ounce on July 15 as crude oil retreated from a record $146.73 a barrel. It traded at $134.38 at 2:52 p.m. in Singapore.

The dollar was at $1.5856 against the euro at 2:53 p.m. in Hong Kong, having touched an all-time low of $1.6038 July 15.

Holdings Jump

Bullion holdings in exchange-traded funds jumped a record 1.48 million ounces on July 11, the largest one-day increase since November, 2004, when the first listing of such funds started, according to John Reade, analyst at UBS Ltd.

``Gold has seen an increase in buying from investors looking to protect themselves from systemic financial risk,'' Reade said in a report yesterday.

Gold for August delivery gained 0.1 percent to $964 an ounce in after-hours electronic trading on Comex at 2:57 p.m. in Hong Kong. Gold for December delivery traded in Shanghai fell 0.5 percent to 211.05 yuan a gram ($961 an ounce) at the same time.

Gold for June 2009 delivery was little changed at 3,288 yen a yen a gram ($972 an ounce) on the Tokyo Commodity Exchange at 4 p.m. local time.

To contact the reporter for this story: Feiwen Rong in Singapore at frong2@bloomberg.netIris Leung in Hong Kong at Ileung7@bloomberg.net