Gold Rises for Second Day as Gains in Crude Oil Boost Demand

By Feiwen Rong

Aug. 14 (Bloomberg) -- Gold rose for a second day in Asia, as higher energy costs revived some investment demand for the precious metal as a hedge against inflation.

Crude oil rose after the U.S. Energy Department reported a sharp fall in gasoline inventories and a larger-than-expected dip in distillate stocks. Oil gained 2.6 percent yesterday while gold advanced 1.8 percent. Gold has erased all the gains this year.

Gold rose yesterday and managed to sustain the gains ``as the oil price rose,'' Darren Heathcote, head of trading at Investec Bank Ltd., said in a report today.

Bullion for immediate delivery rose $2.10, or 0.3 percent, to $828.90 an ounce at 9:35 a.m. in Singapore, 3.3 percent above its more than seven-month low of $802.34 on Aug. 12. Silver for immediate delivery was up 0.2 percent at $14.945 an ounce.

Still, ``fund managers' fears of inflation have all but evaporated to reach their lowest level since the downturn of late 2001,'' said a Merrill Lynch survey of fund managers for August.

A net 18 percent of the 193 respondents expect global core inflation to fall in the coming 12 months, as a falling oil price and growing evidence of recession have prompted this rethink, the report said.

Dollar Outlook

The dollar's strength will also continue to weigh on precious metals, said a report today by China's Haitong Futures Co. in Shanghai.

``Given the weakening growth outlook and a medium-term recovery in the U.S. dollar against other currencies, we maintain our bearish outlook on the precious metals despite short-term bounces,'' the report said.

The dollar rallied to $1.4869 against the euro at 9:43 a.m. in Singapore, compared with $1.4919 in New York yesterday. The currency reached a 5 1/2-month high of $1.4816 on Aug. 12.

Gold for December delivery was up 0.4 percent at $834.70 an ounce in after-hours electronic trading on the Comex division of the New York Mercantile Exchange at 9:44 a.m. in Singapore.

Gold for December delivery on the Shanghai Futures Exchange advanced by 1.7 percent to 184.88 yuan a gram ($838 an ounce).

In Japan, gold for June delivery on the Tokyo Commodity Exchange jumped 1.4 percent to 2,931 yen a gram ($833 an ounce) at 10:45 a.m. local time.

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