Gold Price Rises in Asia as Investors Expect Dollar to Weaken

May 9 (Bloomberg) -- Gold prices rose in Asia, rebounding from yesterday's decline, as investors bought bullion amid concern about the U.S. economy and prospects for a weaker dollar.

Economic growth in the U.S. will slow throughout the year, allowing the Federal Reserve to pause in its cycle of interest rate increases after one more quarter-point rise tomorrow, according to a survey yesterday from the National Association for Business Economics. The trade deficit will drop to $645 billion next year from a forecast $811 billion this year, as the dollar weakens, it said.

``As the dollar weakens, it becomes cheaper to buy gold,'' Koichiro Kamei, president of Market Strategy Institute Inc. in Tokyo, said by phone today. Investors often turn to gold, which is denominated in dollars, to hedge against declines in the value of the U.S. currency.

Gold for immediate delivery rose as much as $4.30, or 0.6 percent, to $683 an ounce today, after falling to a low of $671 yesterday. The metal traded $681.75 at 11:30 a.m. Tokyo time.

The yen traded as high as 111.23 per dollar earlier today. It later eased, trading at 111.87 as of 11:31 a.m. in Tokyo. The euro was at 1.2684 per dollar compared with 1.2713 yesterday.

Some investors also buy gold as a haven against instability in financial markets caused by geopolitical tension. The U.S. government said yesterday a letter from Iran's president hasn't reduced its determination to halt the Islamic Republic's nuclear research, which it alleges is a front to develop nuclear weapons.

International Community

Iranian President Mahmoud Ahmadinejad had written to U.S. President George W. Bush proposing ``new ways'' to improve relations between the two states. The letter does nothing to address the concerns of the international community, White House spokesman Scott McClellan said yesterday.

Before news the letter was announced spot gold prices touched $686.60 yesterday, the highest since October 1980 and the latest in a series of 25-year highs.

Gold futures for June delivery gained as much as $4.90, or 0.7 percent, to $684.80 an ounce on the Comex division of the New York Mercantile Exchange. The contract traded at $683.70 at 11:30 a.m. Tokyo time.