Gold Advances as Signs of China Slowdown Fuel Demand for Hedge

Gold capped the biggest gain in almost a month on signs that Chinese manufacturing will slow in May for the first time in seven months, sparking a drop in global equities and increased demand for bullion as a protection of wealth.

The preliminary reading for a Chinese purchasing managers’ index missed analysts’ estimates and came in below the level of 50, indicating a contraction. Commodities and stocks retreated, with Japanese equities falling the most since the aftermath of the Fukushima disaster two years ago. Bullion also gained as the dollar declined the most in more than a month against a basket of currencies.

“Nervous investors are turning to gold as everything else looks very bleak today,” Carlos Perez-Santalla, a broker at Marex North America LLC, said in a telephone interview from New York. “The weakness in the dollar is supportive for gold.”

Gold futures for June delivery climbed 1.8 percent to settle at $1,391.80 an ounce at 1:45 p.m. on the Comex in New York, the biggest gain since April 25.

Yesterday, futures rose as much as 2.6 percent before dropping 0.7 percent as Federal Reserve Chairman Ben S. Bernanke testified before Congress.

Uncertain Direction

“The bullion market has no real direction whatsoever at the moment,” David Govett, head of precious metals at Marex Spectron Group in London, wrote in a report today. “Moves are massively over-exaggerated due to the type of trading involved, and once these moves are done, the market generally comes back to where it started.”

Gold has tumbled 17 percent this year as some investors lost faith in the metal as a store of value and amid concern that the Fed may scale back economic stimulus measures.

Assets in the SPDR Gold Trust, the biggest bullion-backed exchange-traded product, dropped to 1,020.07 metric tons yesterday, the lowest since February 2009, according to data on the company’s website.

Silver futures for July delivery rose 0.2 percent to $22.508 an ounce in New York. Earlier, prices had fallen as much as 2.5 percent.

On the New York Mercantile Exchange, palladium futures for June delivery retreated 1.8 percent to $738.65 an ounce.

Platinum futures for July delivery slid 0.8 percent to $1,457.20 an ounce, the second drop in three days.

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