July 07, 2010, 12:46 AM EDT

By Kim Kyoungwha

July 7 (Bloomberg) -- Gold advanced, snapping two days of declines, on speculation that prices of less than $1,200 an ounce are reinvigorating demand for the precious metal as a way of preserving wealth.

Bullion for immediate delivery climbed as much as 0.3 percent to $1,196.39 an ounce before trading at $1,192.75 at 12:39 p.m. in Singapore. The metal fell 1.4 percent yesterday as global equities rallied. August-delivery futures fell 0.2 percent to $1,193 today.

“Below $1,200, I would see people buying in the market, and gold will be supported,” said Tetsuya Yoshii, vice president for derivative products at Mizuho Corporate Bank Ltd. in Tokyo. “It’s hard to see another plunge.”

Gold has gained about 9 percent this year, reaching a record $1,265.30 an ounce on June 21, on concern that Europe’s sovereign debt crisis may derail the global economic recovery. Investors may take advantage of gold’s recent declines to seek a “good entry point,” Hussein Allidina, head of commodity research at Morgan Stanley, wrote in a report yesterday.

The metal may rise to more than $1,300 an ounce in the second half, GFMS Ltd. Executive Chairman Philip Klapwijk said in slides prepared for delivery at a Beijing conference today. GFMS is a London-based research company.

‘Strong Possibility’

“Investors will remain the principal driver of prices this year, with a breach of $1,300 in the second half a strong possibility,” the slides said. Klapwijk said on June 30 that gold may “take a crack at” $1,300 an ounce.

Assets in the SPDR Gold Trust, the biggest exchange-traded fund backed by bullion, have increased from 1,133.62 metric tons on Dec. 31, 2009 to 1,316.48 tons yesterday, according to figures on the company’s website.

Gold demand in China gained in the first half as government measures to cool the property market and falling equities spurred buying, Song Yuqin, vice general manager at the Shanghai Gold Exchange, said today at a same conference in Beijing.

China’s rising demand for gold may outstrip local production on investors’ preferences for physical holdings, Song Quanli, deputy party secretary-general at China National Gold Group Corp. said today. The company is China’s largest producer.

The nation’s gold output may gain 5 percent this year from about 313 tons in 2009, Song said.

Auto Catalysts

Platinum and palladium, used in auto catalysts, may extend price declines on slowing auto sales, said Eugen Weinberg, head of commodity research at Commerzbank AG. Platinum and palladium shed 6.7 percent and 7.9 percent in the April-June period, respectively, snapping five quarters of gains.

“Worse-than-expected car sales figures in China could keep this trend going,” Weinberg wrote in a report yesterday. “If China’s car industry cools on a lasting basis, this would thus have a dampening effect on platinum and palladium prices.”

China’s passenger-car sales growth slowed in June. Sales of cars, sport-utility vehicles and multipurpose vehicles rose 10.9 percent from a year earlier to 839,228 last month, the China Automotive Technology & Research Center said this week. That compares with 34 percent growth in April and 25 percent in May.

Platinum fell 0.9 percent to $1,503.15 an ounce, while palladium decreased 0.7 percent to $434.75 an ounce. Silver for immediate delivery was little changed at $17.8275 an ounce.

--With assistance from Feiwen Rong in Beijing. Editor: Jake Lloyd-Smith.

To contact the reporter on this story: Kyoungwha Kim in Singapore at kkim19@bloomberg.net

To contact the editor responsible for this story: Richard Dobson at rdobson4@bloomberg.net

Source:http://www.businessweek.com/news/2010-07-07/gold-advances-as-drop-below-1-200-rekindles-investors-demand.html