Gold may rise for a second week on demand from investors concerned that a slowing U.S. economy and rising consumer prices will create stagflation for the first time since the early 1980s.

Twenty-one of 35 traders, investors and analysts surveyed by Bloomberg News from Sydney to Chicago on July 27 to July 28 advised buying gold, which rose 2.3 percent last week to $647.80 an ounce. Five suggested selling and nine were neutral.

U.S. consumers reined in spending during the second quarter as energy prices climbed, cutting growth by 50 percent compared with the first three months of the year, the government said July 28. A measure of inflation also rose the most since 1994. Gold reached a record $873 in 1980, after U.S. consumer prices surged 13.3 percent and the world's largest economy headed for a record decline.

``Stagflation is something that has the potential to exist again,'' said Katharine Pulvermacher, an economist at the producer-funded, London-based World Gold Council. ``There's a wide concern that we're heading into a recession at a time when we're seeing higher energy prices. Gold offers investors the opportunity to have a little insurance policy.''

Gold futures for December delivery rose $14.70 last week on the Comex division of the New York Mercantile Exchange. A majority of analysts surveyed July 20 and July 21 anticipated the gain. The Bloomberg survey has forecast the direction of prices accurately in 73 of 118 weeks, or 62 percent of the time.

Gold rose 50 percent in the past year, and reached a 26- year high of $732 on May 12, partly on speculation record-high energy costs would lead to accelerated inflation.

`Managing Risk'

The 2.5 percent growth in U.S. gross domestic product, the value of all goods and services produced in the U.S., compares with a 5.6 percent gain in the first three months of the year, the Commerce Department said.

``Investors have bought into gold as a way of managing risk,'' Pulvermacher said. During periods of stagflation, ``people become far more interested in real assets, and gold is a real asset.''

Gold may get a boost should the Federal Reserve conclude next month that the U.S. economy is slowing enough to warrant an end to the series of 17 consecutive interest-rate increases that began in June 2004.

A halt in rate increases would weaken the dollar. Gold traditionally moves in the opposite direction of the U.S. currency. The metal has gained 25 percent this year while the U.S. dollar dropped 6.3 percent against a basket of six major currencies.

Rising Costs

``If the Fed is almost done, what's the incentive for holding U.S. assets?'' said John Licata, chief investment strategist for Blue Phoenix Inc., a precious-metals and energy firm in New York. ``I don't expect the U.S. dollar to hold up and that's bullish for gold.''

Gold also may gain as higher energy costs spur inflation.

The government's personal consumption expenditures index, a measure of prices tied to consumer spending, rose at a 4.1 percent rate after a 2 percent rise in the first quarter. The index excluding food and energy, a measure favored by Fed policy makers, increased at a 2.9 percent annual rate after a 2.1 percent rise the previous quarter.

Oil may rise next week on concern the conflict between Israel and Hezbollah will widen and militant attacks will continue to curb shipments from Nigeria, a separate survey showed. Oil jumped to a record $78.40 a barrel on July 14 and prices are up 22 percent from a year ago.

`Inflation Play'

Oil surged in 1974, helping spur a recession in the developed world, after an oil embargo that followed the Arab- Israeli war in October 1973. Oil more than doubled in 1979 after Iran's revolution slashed the nation's exports. Gold climbed more than $600 in those years.

``Gold is an inflation play,'' Licata said. ``I would be buying oil right now and in turn, gold.''

Southern Lebanon, adjacent to Israel's northern border, is controlled by Hezbollah, a terrorist organization sponsored by Syria and Iran. A United Nations resolution calls for the group's disarmament and for the Lebanese army to take over the area. The group's kidnapping of two Israeli soldiers July 12 sparked the conflict.

Should fighting escalate in the Middle East, investors may buy gold as a way of avoiding risk, some analysts said. Iran is the fourth-largest oil producer.

``The geopolitical risk in the Middle East will prevent gold from being sold,'' said Mikikaru Amano, an analyst at Taiheiyo Bussan Co. in Tokyo. He expects gold to trade as high as $670.

Discounted Safe Haven

The safe-haven premium for gold has already been discounted, some analysts said. Gold reached a two-month high of $677.50 on July 17 when fighting escalated.

``Gold is considered a safe-haven vehicle, but it overreacted to the Middle East situation earlier this month,'' said William B. O'Neill, a partner at Logic Advisors LLC in Upper Saddle River, New Jersey. ``No oil production is being lost and the market is starting to discount the worst and an eventual cessation of violence.''

Wide price fluctuations may discourage buyers, some analysts said. After gold rallied to a 26-year high, prices plunged 25 percent to $546.40 on June 14. The metal's volatility, or the rate at which a price moves up and down, was 30 percent in the past 100 sessions, compared with 11 percent a year earlier.

``I am positive about gold in the longer term but at the moment my advice to clients is to stay out,'' said Ajoy Pathak, associate vice president at Kotak Securities Ltd. in Mumbai. ``The market is too choppy and the volatility has to subside.''