Gold futures rose the most in a week as a slide by the dollar boosted the appeal of the precious metal as an alternative asset.

The greenback fell to a three-month low against a basket of six major currencies after a report signaled the U.S. labor market will be slow to recover. Gold generally moves in the opposite direction of the dollar and has gained 26 percent in the past year, reaching a record $1,266.50 an ounce on June 21.

“Gold is trading off the dollar,” said Frank Lesh, a trader at FuturePath Trading LLC in Chicago. “The dollar’s getting whacked, and that’s helping gold.”

Gold futures for December delivery rose $8.80, or 0.8 percent, to settle at $1,171.20 an ounce at 1:41 p.m. on the Comex in New York, the biggest gain for the most-active contract since July 20.

The euro gained as much as 0.9 percent against the dollar, topping $1.31 for the first time in almost three months, on speculation that Europe’s economy may recover faster than the U.S. A Labor Department report showed limited employment gains as U.S. initial jobless claims dropped by 11,000 in the week ended July 24 from a revised 468,000.

Gold also rose to records last month in euros, U.K. pounds and Swiss francs amid Europe’s sovereign-debt crisis. Today’s gains for the metal may be limited because some investors may still be selling gold and buying euros, analysts said.

“Gold and the euro are not moving in sync yet,” said Frank McGhee, the head dealer at Integrated Brokerage Services LLC in Chicago.

Confidence Gains

Reports showed European confidence in the economic outlook rose this month to the highest level in more than two years, and German unemployment decreased.

“We don’t have that currency fear out there,” Lesh of FuturePath said. “We just don’t have that push that will propel gold much higher at the moment.”

The outlook for gold remains “positive,” even as investors are less concerned that European governments will struggle to reduce debt, Jamie Sokalsky, the chief financial officer of Barrick Gold Corp., said today on a conference call with investors.

“Sovereign-debt issues around the world aren’t likely to go away in the foreseeable future,” Sokalsky said. “The main drivers of investment demand, and hence, higher gold prices, are still in place.”

Precious metals with wider industrial applications gained on speculation that demand for raw materials will pick up as the global economy recovers.

Silver futures for September delivery rose 17.6 cents, or 1 percent, to settle at $17.617 an ounce at 2:01 p.m.

Platinum futures for October delivery gained $21.70, or 1.4 percent, to close at $1,563.40 an ounce at 1:40 p.m. on the New York Mercantile Exchange. Earlier, the price reached $1,568.60, a one-month high.

Palladium futures for September delivery advanced $22.45, or 4.8 percent, to settle at $491.20 an ounce at 1:40 p.m. Earlier, the metal reached $492.75, the highest level since June 22.

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

Source: http://www.bloomberg.com/news/2010-07-29/gold-advances-in-new-york-as-prices-near-three-month-low-spur-purchases.html