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Gold Climbs to Three-Month High on Weaker Dollar to ETP Inflows

July 1 (Bloomberg) -- Gold rose to a three-month high in New York as a weaker dollar increased demand for the metal and after holdings in gold-backed funds climbed to the highest level in almost a month.

The U.S. dollar was little changed near a seven-week low against a basket of 10 major currencies. The net-bullish position in gold surged 72 percent to 114,356 contracts in the week ended June 24, the highest since March, according to U.S. Commodity Futures Trading Commission data. Holdings in gold- backed exchange-traded products increased 0.4 percent to 1,722.4 metric tons as of yesterday, the highest since June 2, data compiled by Bloomberg show.

Gold “is helped by the decline in the dollar index over the last three weeks,” UBS AG analysts wrote in a report today. “Although the overall macroeconomic backdrop remains unfriendly towards gold, with ongoing QE-tapering, looming rate hikes and stocks at record highs, prices have generally been quite resilient. That the aggressive ETF selling of 2013 has not made a comeback has provided ongoing support.”

Gold for August delivery rose 0.4 percent to $1,327.10 an ounce on the Comex by 7:49 a.m. in New York, after earlier today rising as much as 1 percent to $1,334.90, the highest for a most-active contract since March 24. Bullion for immediate delivery was little changed at $1,326.32 an ounce in London. The metal capped a second quarterly advance yesterday, according to Bloomberg generic pricing.

Bullion climbed 10 percent this year on tensions in Iraq and Ukraine, while the Federal Reserve has said that interest rates will stay low for a “considerable time.”

Reports today may show the Institute for Supply Management’s U.S. manufacturing index rose to 55.9 for June from 55.4 in May, while a Markit measure of U.S. factory output may hold at 57.5, according to economists surveyed by Bloomberg.

Strength Index

Gold’s relative strength index was at about 72.2 today, above the level of 70 that signals to some analysts that prices are poised to drop.

“Without significant buying interest and prolonged fatigue in a range-bound market, players will eventually choose to take profits on recent longs depressing prices back towards early June lows,” Andrey Kryuchenkov, an analyst at VTB Capital in London, said in a note today. “There is a serious risk of intensive longs liquidation at this point, especially if inactivity on the physical side lasts longer or the dollar bounces back up later in the week.”

Silver for September delivery rose 0.4 percent to $21.14 an ounce in New York. Palladium gained 0.6 percent to $848.05 an ounce, while platinum for October delivery was 0.6 percent higher at $1,491.60 an ounce.

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