Gold Heads for Longest Rally in Two Months on Physical Purchases

Gold climbed for the third session, heading for the longest rally since late April, as physical purchases rose and the dollar’s decline increased demand for the metal as an alternative investment.

The dollar fell as much as 0.4 percent against a basket of six major currencies, after reaching the highest since July 2010 yesterday. Bullion tumbled 23 percent in the second quarter, reaching a 34-month low of $1,179.40 an ounce on June 28, and some buyers have seen the declines as an opportunity to purchase, ABN Amro Group NV said today in a report.

“Retail buying remains strong, especially out of China,” David Meger, the director of metal trading at Vision Financial Markets in Chicago, said in a telephone interview. “The weakness in the dollar is also putting some bid under gold.”

Gold futures for August delivery added 0.6 percent to $1,253 at 10:01 a.m. on the Comex in New York. Prices gained 2.7 percent in the previous two sessions.

The precious metal dropped 26 percent this year through yesterday, wiping $62 billion from the value of gold held by exchange-traded products, after some investors lost faith in bullion as a store of value and as the Federal Reserve said it may slow bond buying this year. The central bank will release the minutes of its June meeting today and Chairman Ben S. Bernanke is due to speak on economic policy.

Bullion futures as much as doubled from 2008 to a record $1,923.70 in September 2011 as the U.S. central bank led nations in cutting interest rates and buying debt. Gold ETP holdings fell 10.1 metric tons to 1,983.6 tons yesterday, the lowest since May 2010, data compiled by Bloomberg show.

Silver futures for September delivery rose 0.3 percent to $19.19 an ounce in New York. Through yesterday, prices slumped 37 percent this year, the biggest decline among the 24 commodities tracked by the Standard & Poor’s GSCI Spot Index.