Bloomberg News

Gold Rises to Four-Week High on Drop by Dollar, U.S. Equities

June 01, 2011

June 1 (Bloomberg) -- Gold futures rose to a four-week high as the slumping dollar and a decline in U.S. equities boosted demand for the precious metal as an alternative asset.

The Standard & Poor’s 500 Index dropped for the first time in a week after a private report showed U.S. companies added fewer jobs than forecast last month. The greenback touched a three-week low against a basket of major currencies. Gold fell 1.3 percent last month after reaching a record $1,577.40 an ounce on May 2.

“The dollar is starting to weaken again,” said Frank McGhee, the head dealer at Integrated Brokerage Services LLC in Chicago. “Stocks are selling off, and there’s a flight to quality into gold.”

Gold futures for August delivery rose $6.40, or 0.4 percent, to settle at $1,543.20 an ounce at 1:35 p.m. on the Comex in New York. Earlier, the metal reached $1,551.60, the highest since May 2. The price has gained 26 percent in the past 12 months.

U.S. manufacturing expanded in May at the slowest pace in more than a year. The Institute for Supply Management’s factory index fell more than projected to 53.5, the lowest since September 2009, from 60.4 in April, the Tempe, Arizona-based group said today.

The Federal Reserve has kept its benchmark interest rate at zero percent to 0.25 percent since December 2008 and pledged to buy $600 billion in Treasuries through the end of June as a part of a so-called quantitative-easing program to help revive the economy.

‘Soft Patch’

“There’s a lot of iffiness about the end of QE2 and questions about whether there will be a QE3,” said Matt Zeman, a strategist at Kingsview Financial in Chicago. “There’s a serious soft patch in economic data, and the Fed is not going to be able to raise interest rates anytime soon. That’s going to be a dollar negative and gold positive.”

Silver futures for July delivery fell 61.1 cents, or 1.6 percent, to $37.694 an ounce. In May, the metal tumbled 21 percent, the most since August 2008. The price has doubled in the past 12 months.

Palladium futures for September delivery fell $1.90, or 0.2 percent, to $779.10 an ounce on the New York Mercantile Exchange.

Platinum futures for July delivery fell $10.10, or 0.6 percent, to $1,823.90 an ounce on the Nymex.

--Editors: Millie Munshi, Daniel Enoch

To contact the reporter on this story: Pham-Duy Nguyen in Seattle at pnguyen@bloomberg.net.

To contact the editor responsible for this story: Steve Stroth at sstroth@bloomberg.net.


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