Gold Rises in London as Physical Demand Gains, Crude Oil Climbs

By Rachel Graham

Sept. 4 (Bloomberg) -- Gold climbed for the first time in five sessions in London as buyers replenished stockpiles and rising crude-oil prices buoy demand for the metal as a hedge against inflation. Platinum posted its first gain this week.

India, the world's biggest buyer of bullion, increased imports of the metal in August for the first time in 11 months as prices dropped 9 percent, according to the Bombay Bullion Association Ltd. Crude rose as Hurricane Ike gained force in the Atlantic, sparking concern that supplies face disruption.

``Physical demand is still very strong in gold,'' Narayan Gopalakrishnan, a Geneva-based trader at MKS Finance, one of Switzerland's four bullion refiners, wrote in an e-mail. ``Today's news of Hurricane Ike strengthening is lending further support on crude and gold.''

Gold for immediate delivery gained $10.32, or 1.3 percent, to $811.61 an ounce as of 1:09 p.m. in London. Gold futures for December rose $8.30, or 1 percent, to $816.50 an ounce in electronic trading on the Comex division of the New York Mercantile Exchange.

Gold may gain 10 percent by the end of the year, driven by demand for jewelry during the Indian wedding and festival season, according to JPMorgan Chase & Co. data.

The season has boosted prices every year since 2002 with September the strongest buying month, JPMorgan analysts led by Brendan James said in a report. Over the past decade, gold has risen by an average of 10.1 percent from September through December, according to a study by the broker.

Dresdner Bank AG expects gold to decline to $750 by the end of the year, commodity research analyst Bayram Dincer said today by phone from Zurich.

Dollar Strength

The metal will weaken because of ``easing inflation concerns, continuing dollar strength and falling crude prices,'' Dincer said. ``Headline inflation will come down as commodity prices fall.''

The UBS Bloomberg CMCI Index of 26 commodities has dropped 18 percent since the beginning of July, while the dollar has climbed 8 percent against the euro in the same period.

Gold rose to $810.50 an ounce in the morning ``fixing'' in London, used by some mining companies to sell production, from $803.50 at the previous afternoon fixing.

Assets in the SPDR Gold Trust, the largest exchange-traded fund backed by bullion, fell 1.4 percent yesterday, the first drop in more than two weeks. Gold held by the company fell 9.19 metric tons to 642.18 tons yesterday, according to figures on the company's Web site.

Silver for immediate delivery rose 15 cents, or 1.2 percent, to $13.06 an ounce.

Assets in Barclays Plc's iShares Silver Trust, the largest exchange-traded fund backed by the metal, fell from a record on Sept. 2. Silver held by the company fell to 6,471 tons from a record 6,474 tons, according to data on the company's Web site.

Among other metals for immediate delivery, platinum gained $23.50, or 1.7 percent, to $1,412 an ounce and palladium rose $5, or 1.7 percent, to $292 an ounce.

To contact the reporter on this story: Rachel Graham in London at rgraham13@bloomberg.net