Gold Gains for 1st Time in Three Days in London as Dollar Drops

By Nicholas Larkin

Nov. 3 (Bloomberg) -- Gold rose for the first time in three trading sessions in London, paring its worst monthly drop in a quarter-century, after the dollar weakened against the euro, boosting the appeal of the metal as an alternative investment.

Gold declined 17 percent last month, the worst loss since February 1983. The relationship between gold and the euro-dollar exchange rate has strengthened this year, with a correlation of 0.58, compared with 0.52 a year earlier. A figure of 1 would mean the two moved in lockstep.

Bullion is ``a few bucks higher on the back of a slightly firmer euro,'' James Moore, an analyst at TheBullionDesk.com, said by phone today. The market will be ``keeping an eye on currencies and whether there's a reaction'' to central bank rate decisions later this week, he said.

Gold for immediate delivery gained $13.48, or 1.9 percent, to $735.28 an ounce as of 10:47 a.m. in London. Futures for December added $16.80, or 2.3 percent, to $735 an ounce in electronic trading on the Comex division of the New York Mercantile Exchange.

Gold rose to $734 in the morning ``fixing'' in London, used by some mining companies to sell production, from $730.75 at the previous afternoon fixing.

The dollar weakened today on speculation that growth in the U.S., the world's largest economy, will slow further, backing the case for the Federal Reserve to cut interest rates.

``All eyes will likely be on the European Central Bank and Bank of England interest rate decisions later this week,'' Walter de Wet, an analyst at Standard Bank Ltd. in Johannesburg, wrote in a note. ``The market expects both central banks to cut rates by 50 basis points,'' which may cause the euro and pound to weaken against the dollar, he said.

Refinancing Rate

ECB policy makers meet Nov. 6, when they will probably reduce the region's main refinancing rate a half point to 3.25 percent, a Bloomberg survey of economists showed. The Bank of England will also announce a cut in borrowing costs on the same day to 4 percent, a separate survey indicated.

Hedge-fund managers and other large speculators decreased their net-long position in New York gold futures in the week ended Oct. 28, according to U.S. Commodity Futures Trading Commission data.

Speculative long positions, or bets prices will rise, outnumbered short positions by 78,315 contracts on the Comex division of the New York Mercantile Exchange, the Washington- based commission said in its Commitments of Traders report. Net- long positions fell by 20,887 contracts, or 21 percent, from a week earlier.

Among other metals for immediate delivery, silver rose 26 cents, or 2.6 percent, to $10.11 an ounce. Platinum climbed $17.15, or 2.1 percent, to $837 and palladium lost $1, or 0.5 percent, to $198.75 an ounce.

To contact the reporter on this story: Nicholas Larkin in London at nlarkin1@bloomberg.net