Gold May Gain as Growth Outlook, Weaker Dollar Boosts Demand

Gold may gain for a third day in New York as concern about Europe’s debt crisis, signs that the U.S. economy is slowing and a weakening dollar spurs demand for the metal as an alternative investment. Palladium climbed.

U.S. payrolls grew at the slowest pace in eight months in May and manufacturing expanded at its slowest pace in more than a year, reports showed last week. The European Union needs to reach an accord on Greece’s debts before finance ministers meet on June 20, EU Economic and Monetary Affairs Commissioner Olli Rehn said yesterday. The dollar slid to a one-month low against six currencies. Gold typically moves counter to the greenback.

“Speculation U.S. economic growth is losing pace and the Greek debt crisis is worsening” is supporting gold, John Meyer, an analyst at Fairfax IS in London, wrote in a report today. “The dollar is off this morning, helping support prices as they push toward the record.”

Gold for August delivery fell 40 cents to $1,546.80 an ounce by 7:59 a.m. on the Comex in New York. It yesterday reached $1,555, the highest price since May 2. Immediate-delivery gold was 0.1 percent higher at $1,546.05 in London.

Concern about faster inflation, Europe’s debt crisis, a weakening dollar and fighting in Libya boosted gold to a record $1,577.40 on May 2. Prices are up 8.8 percent in 2011 after climbing the past 10 years, the longest run of gains in at least nine decades in London. Federal Reserve Chairman Ben S. Bernanke is scheduled to speak today at the International Monetary Conference in Atlanta as the bank’s second round of bond buying, called quantitative easing or QE2, ends this month.

Debt Crisis

European Central Bank President Jean-Claude Trichet signaled for the first time he may support encouraging investors to buy new Greek bonds to replace maturing securities as officials seek to stem the nation’s debt crisis. ECB policy makers have opposed any measure that could be classed as a default to avoid what Rehn described yesterday as a “Lehman Brothers catastrophe.”

“The market’s still very sensitive to what’s happening in Greece and Europe, and at the same time sensitive to U.S. data,” Darren Heathcote, head of trading at Investec Bank (Australia) Ltd., said by phone. “There doesn’t seem to be many reasons to be selling gold at this present moment.”

Gold Fund

China Universal Asset Management Co. received approval from the nation’s financial-market regulator to start a fund that will invest holdings in overseas exchange-traded products backed by precious metals. Liu Ming, a spokesperson for China Universal, didn’t give details of when the fund would start raising money, nor how the extent of the holdings in each metal will be set.

“All the market participants we met with in China last week expect a slowdown in physical demand before buying picks up again in September,” Edel Tully, a London-based analyst at UBS AG said today in a report. While there may be “summer headwinds” for gold, “this would be viewed by most as a short-term correction within a bullish market. It’s very difficult to leave Asia, and in particular China, without feeling bullish about gold.”

Silver for July delivery rose 1.4 percent to $37.285 an ounce in New York. Palladium for September delivery climbed as much as 1.6 percent to a three-month high of $811.80 an ounce and was last at $806. Platinum for July delivery was 0.1 percent higher at $1,823.40 an ounce.

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