Gold Increases in Asia as Crude Oil Gains, Dollar Rally Stalls

By Glenys Sim

Aug. 7 (Bloomberg) -- Gold gained in Asia after crude oil rose from a three-month low, boosting the precious metal's appeal as an inflation hedge, while the dollar's rebound paused.

Bullion has lost 4.7 percent in the past month as oil prices slumped 16 percent and the dollar gained 1.8 percent against the euro. Crude rose after declining yesterday on an unexpected gain in U.S. supplies. The dollar fell from a near seven-week peak against the euro ahead of a European Central Bank meeting today at which rates may be left unchanged.

``The fact that gold managed to hold up in the face of falling crude oil and a recovering U.S. dollar yesterday attracted some buying interest,'' Anderson Cheung, deputy managing director of precious metals at Mitsui Bussan Precious Metals (HK) Ltd., said by phone today.

Bullion for immediate delivery gained as much as $4.20, or 0.5 percent, to $884 an ounce, and traded at $882.45 at 2:02 p.m. in Singapore. Silver for immediate delivery was up 0.4 percent at $16.62 an ounce.

Crude Oil for September delivery on the New York Mercantile Exchange was up 0.3 percent at $118.88 a barrel, after falling to the lowest close since May 2 yesterday as an Energy Department report showed crude supplies rose 1.61 million barrels last week.

The dollar fell against the euro after rising for four days against a weighted basket of six currencies, including the euro and yen. The currency stood at $1.5459 against the euro, compared with $1.5408 late yesterday in New York. The dollar touched $1.5398 yesterday, the strongest since June 16.

``We are cautiously retaining our bullish medium-term view on gold,'' Standard Chartered Plc analysts Helen Henton and Dan Smith said in a report yesterday. ``Global conditions are likely to deteriorate further in the months ahead, inflation risks remain and the U.S. dollar is likely to remain weak this year.''

Gold Trust

Investments in the SPDR Gold Trust, the biggest exchange- traded fund backed by bullion, have fallen 2.2 percent this week to 659.3 metric tons yesterday, down from a record 705.9 tons on July 11.

``The inflation scare seems to be fading with all commodities prices coming off,'' said Cheung. ``But holdings in the gold ETFs are still quite long. If those investors reckon holding cash is safer then there might be more pressure on gold ahead.''

Gold for December delivery rose 0.9 percent to $890.90 an ounce in after-hours electronic trading on the Comex division of the New York Mercantile Exchange at 2:13 p.m. Singapore time. Gold for December delivery traded in Shanghai was little changed at 197.01 yuan a gram ($892 an ounce).

Gold for June delivery on the Tokyo Commodity Exchange was 1.2 percent higher at 3,136 yen a gram ($890 an ounce) at 3:11 p.m. local time.

To contact the reporter on this story: Glenys Sim in Singapore at gsim4@bloomberg.net