Gold Advances in Asia as Dollar Falls, Physical Demand Rises

By Feiwen Rong

Aug. 21 (Bloomberg) -- Gold rallied in Asia as demand from physical buyers rose and the dollar fell, boosting the appeal of bullion as an alternative asset.

The dollar weakened against the euro and the yen before a Federal Reserve report that may signal manufacturing contracted, undermining the case to raise interest rates. Physical demand picked up in the past 2-3 weeks from the Middle East, Europe and Asia, John Reade, analyst at UBS Ltd. in London, wrote in a report yesterday.

``We hold our one and three months forecasts for gold at $850 and $900 an ounce, respectively,'' Reade said. ``All that stands in the way of an impressive tactical gold rally is a correction in the dollar.''

Gold for immediate delivery gained as much as $3.93, or 0.5 percent, to $817.61 an ounce and traded at $816.10 at 10:25 a.m. in Singapore. The metal dropped to as low as $772.98 Aug. 15, the lowest since October. Silver for immediate delivery was little changed at $13.2425 an ounce.

The dollar fell to $1.4780 per euro in Singapore, from $1.4747 late yesterday in New York, on speculation futures traders will pare bets that the dollar will gain. The U.S. currency was at 109.71 yen from 109.86 yen.

Gold was also supported by a rise in crude oil futures in New York, which increased 1.3 percent to $116.48 a barrel at 10:29 a.m. in Singapore.

Gold for December delivery was up 0.6 percent to $821.40 an ounce in after-hours electronic trading on the Comex division of the New York Mercantile Exchange at 10:33 a.m. in Singapore.

Bullion for December delivery on the Shanghai Futures Exchange gained 0.5 percent to 183.59 yuan a gram ($833 an ounce).

In Japan, gold for June delivery on the Tokyo Commodity Exchange fell 0.2 percent to at 2,885 yen a gram at the 11 a.m. local time break.

To contact the reporter on this story: Feiwen Rong in Singapore at frong2@bloomberg.net