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Gold May Climb for Second Day on Price Drop, Increased Commodities Demand

Gold may gain for a second day in New York on speculation the metal’s price decline will boost physical demand and as investors buy commodities.

Bullion rebounded yesterday after earlier dropping to an eight-week low of $1,175.10 an ounce, while holdings in the world’s biggest gold-backed exchange-traded fund fell 6.08 metric tons. The metal is trading 5.6 percent below a record $1,266.50 set June 21. European equities gained and the dollar rose against the euro before Federal Reserve Chairman Ben S. Bernanke speaks today on the economy.

“There’s been an upturn in physical buying, in Asia particularly,” said Dan Smith, an analyst at Standard Chartered Plc in London. “People see it is a cheap price. There’s been a bit of an improvement in risk appetite and gold can benefit on the back of portfolio flows.”

Gold futures for August delivery added $3.80, or 0.3 percent, to $1,195.50 an ounce at 8:03 a.m. on the Comex in New York. Prices earlier fell as much as 0.3 percent. Gold for immediate delivery in London was 0.3 percent higher at $1,195.88.

Bullion rose to $1,191.25 an ounce in the morning “fixing” in London, used by some mining companies to sell output, from $1,183 at yesterday’s afternoon fixing.

“There’s more money available for commodities,” Smith said. All six industrial metals on the London Metal Exchange rose today, led by copper. Crude-oil futures gained in New York.

Gold climbed with the dollar in the previous three quarters as the euro slumped 16 percent in the period against the greenback. The U.S. currency yesterday fell to the lowest level since May 10 against the euro.

Stress Tests

European regulators are examining the strength of 91 banks to determine whether they can survive potential losses on sovereign-debt holdings. Results will be released July 23. Fed ChairmanBernanke delivers his semiannual report on monetary policy to the Senate Banking Committee today, and testifies to the House Financial Services Committee tomorrow.

Assets in the SPDR Gold Trust, the biggest ETF backed by bullion, fell to 1,308.13 tons yesterday, according to the company’s website. Global holdings of the metal by ETFs dropped 6.08 tons from a record to 2,071.97 tons yesterday, according to Bloomberg data from 10 providers.

“There has been a quiet, but steady net decline over the course of the past three weeks” in ETF holdings, said Dennis Gartman, an economist and the editor of the Suffolk, Virginia- based Gartman Letter. “It takes buying and lots of it to put any market up; it takes a mere lack of buying to put the same market down.”

Silver for September delivery in New York rose 0.8 percent to $17.835 an ounce. Platinum for October delivery gained 0.5 percent to $1,525 an ounce. Palladium for September delivery was little changed at $451.10 an ounce.

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

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