Canadian stocks rose, led by commodity producers on higher gold prices and after Glamis Gold Ltd. agreed to be bought by Goldcorp Inc. for about $8.6 billion to create the world's fifth-largest bullion producer.



``Resource companies are flush with cash. Pick your stock as to who will be the next target,'' said Gerry Brockelsby, who helps manage $266 million at Marquest Investment Counsel in Toronto, including Glamis Gold shares. ``The other thing driving the market is that as the economy slows, interest rates will come down. That's bullish for stocks.''


Glamis Gold jumped C$8.74 to C$51.76. The miner of gold in Nevada and Honduras agreed to be bought by larger rival Goldcorp Inc. for about $8.6 billion. The stock offer values each share of Reno, Nevada-based Glamis at $51.49, 33 percent more than yesterday's closing price, the companies said in a statement today.

Goldcorp shares dropped C$2.68 to C$31.09.

A gauge of raw-material shares rose 1.1 percent. It accounts for 16 percent of the S&P/TSX's value and is the best performer among 10 industry groups in the index this year, as commodity prices soared on rising global demand.

Gold futures for December delivery rose 1.2 percent to $633.50 an ounce in electronic trading in New York.

Newmont Mining Corp. agreed to reopen its Peruvian Yanacocha gold mine, the world's second-largest, after protesters pledged to end roadblocks, Cabinet chief Jorge del Castillo said.

The government will form a commission to mediate between Denver-based Newmont, the world's second-biggest gold producer, and local officials from the town of Combayo, 560 kilometers (350 miles) northwest of Lima, who are seeking more jobs and clean water, del Castillo said at a press conference in Lima. Clashes with police at the mine this month left one person dead and more than a dozen injured.

``We've taken an important step forward,'' del Castillo said. ``Not just to restore order but also for the state to help spur development in the region.''

The Aug. 28 decision to shut the mine cost the government 6 million soles ($1.9 million) a day in lost tax revenue, Newmont vice-president Carlos Santa Cruz said yesterday. Yanacocha, which produced 3.3 million ounces of gold in 2005, is Peru's largest exporter.

Newmont and other international mining companies operating in Peru, the world's fifth-largest gold producer, have faced protests over the past two years as Peruvians pressed for a greater share of the country's profits from exports of gold, copper, zinc and silver.

Water

Farming communities in the northern Andean region of Cajamarca fear the mine will pollute local water supplies, Marco Arana, director of the NGO Grufides, which is representing the protesters, said today at a press conference in Lima.

Newmont shares fell for a second day, dropping 42 cents, or 0.8 percent, to $50.97. Shares have fallen 8.2 percent since July 3. Cia. Minera Buenaventura SA, which holds a 44 percent stake in Yanacocha, fell 10 cents, or 0.4 percent, to $26.82 in New York trading of its ADR.

Gold futures for December delivery fell for the fifth day in six, dropping $4.80, or 0.8 percent, to $613.20 an ounce on the Comex division of the New York Mercantile Exchange. Gold prices have risen by 40 percent over the past 12 months.

Spot gold was slightly stronger in early afternoon trade today on the back of a weaker dollar. The market was quiet, however, as players awaited the release of the minutes of the last US Federal Open Market Committee (FOMC) meeting which could give the dollar direction.

In early afternoon, gold was quoted at $617,06 a troy ounce from an overnight close of $613,45/oz. The euro was bid at $1,2802 from $1,2784 late yesterday.

"Gold has just strengthened on a bit of dollar weakness," said a market analyst.

She said that everyone was waiting for information out of the US, particularly the minutes of FOMC meeting held earlier this month.

Should the dollar weaken further on the release of the minutes, gold could extend its gains. This month’s meeting saw US interest rates left on hold after 17 consecutive rate increases.

"I still think there is going to be room for gold to improve on the back of oil moving higher over the next few weeks," said the analyst.

Platinum was quoted at $1,221,50/oz, up $7 from its overnight close. Palladium was unchanged at $339,50/oz.

Gold was trapped in a range on Monday after crude oil reversed gains and sentiment turned sour because of the metal's failure to sustain recent highs.

Gold shrugged off news that four separate bombs at a popular Turkish coastal resort and in the country's commercial hub Istanbul had wounded at least 27 people, including 10 British tourists.

Spot gold hit a high of $623.50 an ounce and then retreated to $622.10/623.60 an ounce. That was little changed from $621.50/623.00 late in New York on Friday, when the metal rose more than $1 because of a jump in oil prices.

"I just think sentiment is probably on the wane. I'd be more tempted to think that we might be heading towards $600 again. It just doesn't seem to want to break up again at the moment," said Darren Heathcote of Investec Australia in Sydney.

"I'd think people are not very strongly bullish at the moment...a little bit lost as to the future direction, what they should be doing with regards of their investments in terms of buying gold as a safe haven or as anti-inflationary hedge," he said.

Gold rose to its highest in nearly two months at $676 an ounce in mid-July but then dropped to near four-week low around $601 a few days later. It rebounded to its highest in two weeks around $655 and trading had been choppy since.

Gold spiked to a 26-year high of $730 in mid-May as tension in the Middle East, rising energy costs and uncertainty in the dollar's outlook sparked safe-haven buying.

Gold rose for the first day in four in London and New York on speculation that an international conflict over Iran's nuclear program will escalate.


``We are getting ready for the next explosion in precious metal prices,'' said Puru Saxena, chief executive officer of Puru Saxena Ltd., his Hong Kong-based fund management company. Gold will be buoyed by ``a worsening of geopolitical conflicts, and tensions in the Middle East,'' Saxena said.

Gold futures for delivery in December rose $2, or 0.3 percent, to $630.50 at 12:24 p.m. on the Comex division of the New York Mercantile Exchange. A close at that price would leave gold up 1.6 percent for the week, the first gain in three weeks. Gold for immediate delivery rose 52 cents to $621.92 at 5:26 p.m. in London.

Gold, down 14 percent since reaching a 26-year high of $732 on May 12 in New York, has begun to rally in the past two months. Prices are up 16 percent since reaching a two-month low of $546.40 on June 14.

Bullion also got a boost today after an Aer Lingus flight from New York was diverted following a security alert. The plane was evacuated at Shannon Airport in Ireland today after police received a telephone call from an unidentified person, sparking a security alert.

Canada`s Euromax Resources Ltd., has uncovered a gold deposit in western Bulgaria, near the Serbian border, media reported Thursday.

The Bulgarian BTA news agency said in the Trun area, west of Sofia, gold is visible at ground level, and in some places subsurface concentration reaches 15.4 ounces per ton.

John Menzies, Euromax chairman and chief executive officer, said the gold deposit is among the most significant discovered in the last 100 years, the agency said.

The deposit was named Nadezda, or Hope, and measures 4,920 feet by 230 feet.

Bulgarian authorities have issued a prospecting licence for the Trun area to a joint venture between Euromax and another Canadian company, Tech Cominco, BTA said.

Shares of gold miners were mixed Tuesday, as the price of gold declined modestly after strong gains the previous day.


Gold settled $1.20 lower at $634 an ounce on the New York Mercantile Exchange. On Monday, the contract had jumped $13.50 to close at $635.20 an ounce.

Gold mining equities initially slipped Tuesday, with some turning skyward in afternoon trading and others remaining in retreat.

Shares of Canada's Barrick Gold Corp., the world's largest gold producer, lost 2 cents to $32.98 on the New York Stock Exchange. Newmont Mining Corp. also traded higher, adding a penny to $52.56 on the Big Board.

Among those in retreat were AngloGold Ashanti Ltd., whose U.S.-traded shares shed 86 cents to $49.22, and Freeport McMoran Copper and Gold Inc., which dipped 49 cents to $56.66 in afternoon trading.

Gold rallied more than 2 percent on Monday as a sharp fall in the dollar and stronger oil prices ignited fresh buying by investors.

Fears that a week-long cease-fire in the Middle East might unravel also supported the metal seen as a safe haven from riskier investments, dealers said.

Spot bullion hit a high of $626.40 an ounce before ending active New York trade at $625.60/626.40, versus $611.80/2.60 late on Friday, when it dropped to a three-week low of $607 on speculative selling.

"The buying seems to be mostly short covering in nature, triggered by the drop in the dollar and the rally in crude prices," said James Steel, precious metals analyst at HSBC Bank, who added gold was likely to stay choppy near term.

George Gero, vice president at RBC Capital Markets Global Futures, said buying also was touched off because of increased geopolitical tensions and a jump in copper prices amid a labor dispute at a giant Chilean mine.

"Traders said, 'I don't want to be short in gold,'" Gero said. "But it wasn't a major volume day and you have a limited audience because of holidays, so that helped exaggerate the market's move."

The dollar weakened across the board, hitting a two-month low against the euro as investors shunned the currency amid mounting evidence that the U.S. economy was slowing.

Gold generally rises with a drop in the dollar as the metal become cheaper for holders of other currencies.

Oil rose above $72 a barrel as Iran's supreme leader said the Islamic Republic would press on with its nuclear work, implying it would not heed a U.N. demand to stop enriching uranium. The row has raised concern of disruption to oil flows from the world's fourth-largest exporter.

Higher oil prices support gold because the precious metal is often used as a hedge against inflation.

German Chancellor Angela Merkel described the situation in Lebanon as "very fragile" as a truce between Israel and Lebanese Hizbollah guerrillas entered its second week. [nL20365032]

OUTLOOK

John Reade, precious metals analyst at UBS Investment Bank, added in a report: "We remain positively disposed to gold in the short and medium term. We believe this sell-off is overdone and has been exacerbated by low volumes.

"The dollar looks weak, oil has probably weakened too much

(and) physical demand for gold picked up strongly on Friday with good interest from the Indian trade."

Dealers said global tensions and firm oil would offer support for gold, but the metal lacked strength to break free from the current $600 to $650 range.

Other precious metals tracked gold's gains.

Platinum rose to $1,230/1,235 from $1,207/1,213 previously, while palladium was at $342/348, up from $329/334.

Silver increased to $12.29/12.39 an ounce from $12.01/12.11 late Friday.

Gold prices gained in London for a second day after investors bought the metal as a hedge against inflation following a rebound in oil prices.

Crude oil climbed as Iran's Foreign Ministry spokesman Hami Reza Asefi yesterday said the world's fourth-largest oil producer won't consider suspending its nuclear research program by Aug. 31, in line with the UN's demand. Bullion has increased 16 percent this year, partly driven by a 20 percent jump in crude-oil prices.

``Gold is following oil prices up,'' said Malcolm Freeman, managing director of Ambrian Commodities Ltd., the trading arm of Golden Prospect Plc, a U.K. natural-resources investment company.

Gold for immediate delivery rose $6.75, or 1.1 percent, to $621.65 an ounce at 9:44 a.m. in London. Gold futures for December delivery rose $9.30, or 1.5 percent, to $631 an ounce on the Comex division of the New York Mercantile Exchange division of the New York Mercantile Exchange.

Platinum gained $17 to $1,227.50 an ounce and palladium was rose to $335. Silver increased 18.5 cents to $12.235 an ounce.

Europe's central banks are expected to sell only about three-quarters of the full quota of 500 tonnes of gold in the second year of an agreement that regulates bullion sales, analysts said.

The market has discounted further sales, on top of some 340 tonnes already sold, in the remaining six weeks until the second year runs out end September, but any sudden offload might push prices sharply lower, they said.

"History is that they always sold the limit, however there has been no indication of any large sales," said Matthew Turner, analyst at precious metals consultancy Virtual Metals.

Although sales have picked up in recent weeks, central banks would need to up the pace to meet the target, he added.

However, some analysts attributed recent weakness in gold partly to central bank sales.

"The sense in the market is that some of the selling activity that has been going on has been (by) central banks," said Stephen Briggs, economist at SG Corporate and Investment Banking.

There has been no official word to confirm or deny any large-scale selling by central banks.

Europe's Central Bank Gold Agreement (CBGA) was negotiated in 1999 to stabilise prices when gold was languishing below $US300 because of the attraction of other investments.

The pact, agreed in 2004, raised the limit on gold sales by its 15 signatories over five years to 2,500 tonnes at a rate of 500 tonnes a year, from 2,000 in the previous 1999-2004 period.

The banks sold the full quota of 2,000 tonnes during five years of the first agreement and 497.2 tonnes in the first year of the current pact.

"According to the data released, the signatories have sold around 338 tonnes up to last Friday. This would not include any forward sales, which have not yet matured," Jill Leyland, economic adviser to the World Gold Council, said.

"Personally, I would be little surprised if they suddenly start selling 160 tonnes between now and 26th September, because one would wonder why they haven't done it before," she added.

Analysts said the banks would have to sell more than three tonnes a day until late September to meet the 500-tonne limit, but selling at such a high rate was unlikely.

The European Central Bank sold about two tonnes in the week ending August 11, they said.

France has sold 116.50 tonnes until end-June of the second year of the agreement, higher than the total sold last year of 115 tonnes. As of June 2006, it had total gold reserves of 2,790 tonnes. Spain sold 35.6 tonnes, up from 30 tonnes.

Germany, the world's second largest holder of gold, announced in March 2006 it would not sell during the second year.

Gold prices fell to a three-week low of $US611.90 an ounce mainly on technical selling and a weakness in oil prices over the week.

But prices are still about 18 per cent higher from the start of the year, although well off May's 26-year peak of $US730.

"There's been talk circulating about central bank gold sales. I see it as a double-edged sword," James Quinn, commodity commentator for AG Edwards in New York, said.

"If you are bullish you say they are holding back because they don't want to sell the gold. If you are bearish you're saying they'll eventually sell gold because they can."

A New York-based gold trader said that people were aware that the central banks would not meet the target.

"But people know there as been some central banks selling around and if that persists throughout the month, it's going to be dangerous being long."

The Indian government is soon likely to relax scrap and raw gold import norms paving way for higher and cheaper import of the precious metal into the world’s largest gold consuming country.

Sources close to the Reserve Bank of India (RBI) stated that the concerns regarding raw gold, which will be imported by classifying it under brass imports, has been resolved. “The government is likely to announce reduction in import duty on raw gold to bring it on par with pure gold,” the industry veteran added.

Currently, the import duty on pure gold is 1.5%, while it is more than three times at 5% on the raw gold imports. This has discouraged refiners from setting up shop in India.

On the other hand, India imports an average 500 tonne of pure gold annually for last 10 years. However, if the import duty is brought on par with raw gold India may see a few gold refineries being set up that meet international standards.

Currently, India does not have a single London Bullion Market Association (LBMA) approved refinery. LBMA requirements for assaying standards and bar quality are strict, and only those large bars produced in their approved refineries are acceptable in the London market as ‘Good Delivery’. “India has a huge potential to make a viable business proposition for setting up a gold refinery if the import duty on raw gold is slashed,” Manan Desai, COO(Middle East and Indian subcontinent), Citigold Corp, said.

Gold fell in London and New York as crude oil slid below $70 a barrel for the first time since June, eroding the metal's appeal as a hedge against inflation.

Gold for immediate delivery in London fell as much as $2.77, or 0.5 percent, to $611.23 an ounce and traded at that level as of 3:22 p.m. local time.

Gold futures for December delivery fell $5.10, or 0.8 percent, to $620.20 an ounce on the Comex division of the New York Mercantile Exchange.

Gold fell to its lowest level in more than three weeks on Friday after declines in crude oil prices ignited selling from speculators, but the lower levels attracted purchases from bargain hunters and jewellery makers.

Platinum also hit a three-week low and palladium dropped as much as 2.7 percent after spiking to a 10-week high of 338 dollars the previous day on technical buying and purchases from Chinese jewellery makers. Silver hovered below 11 dollars an ounce.

Talk that central banks might be selling gold resurfaced but there was no confirmation, said dealers.

Spot gold hit a low of 611.90 dollars an ounce before rebounding to 613.00/613.80 dollars an ounce, still down from 615.10/615.85 dollars late in New York on Thursday, when it dropped nearly 2 percent.

Silver which normally tracks gold, edged down to 11.88/11.98 dollars an ounce from 11.94/12.04 dollars late in New York.

"Generally people are caught long. It could really be central bank selling, that's why we broke 630 dollars and came crushing down to this level. But I think the price drop is normal," said dealer in Singapore.

"I don't expect much activity in Asia and if anything, Asians will be buying gold at this level, not selling. We are still within the range of 600 and 650 dollars and there's nothing to be excited about," he said.

Benchmark gold futures on the Tokyo Commodity Exchange plunged by the daily 60 yen limit to 2,304 yen per gram on active technical selling given this week's falls in oil prices.

Gold is used in jewellery and often bought as an investment that can be sold in times of trouble.

"It's looking a bit bearish for gold but it's still probably going to find pretty good support at 600 dollars. It's more like that 625 dollars on the top side again now," said Darren Heathcote of Investec Australia in Sydney.

Declines in crude oil and a US-ordered truce in Lebanon may reduce gold's appeal as a hedge against inflation, but Heathcote said geopolitical tension remained and that would offer some support.

"Whether that [truce] holds or not is still yet to be found out. If that blows up again, the oil price will no doubt go with it," he said.

Oil prices have come under pressure after a cease-fire took hold in Lebanon and BP said it would keep pumping from half of its 400,000 barrel-per-day (bpd) Prudhoe Bay oilfield during pipeline repairs.

US crude oil had tumbled more than 7 percent in six out of eight sessions up to Thursday's US market close.

"Weak oil is the key factor putting selling pressure on gold, but we still haven't see major liquidations," said Shuji Sugata, assistant manager at Mitsubishi Corp. Futures and Securities.

"The trend for gold is weak and we need to see if further sales emerge next week when more players come back from holiday," Sugata said. Still, gold could gain support if geopolitical tensions intensify again, as plenty of buyers are looking to buy gold for investment purposes on price dips.

A UN Security Council resolution adopted on Aug. 11 called for a truce and a peacekeeping force to help the Lebanese army supervise the pull-out of Israeli troops from the southern Lebanon after 34 days of fighting between Israel and Hizbollah guerrillas. Most fighting stopped on Monday.

Some Hong Kong dealers reported active buying in the physical sector.

"Trading houses have bought palladium because it's quite cheap. Even today, we saw strong buying for gold from physical buyers as well as bargain hunters," said a dealer.

Platinum hit a low of 1,209 dollars before rebounding to 1,211/1,216 dollars an ounce. That was still lower than 1,230/1,235 dollars late in New York.

Sister metal palladium also fell to 331/336 dollars an ounce from 336/341 dollars. It touched a low of 327 dollars an ounce in Asia.

Dealers said palladium attracted interest from jewellers and speculators as it was moving away from a four-year high of 406 dollars an ounce hit in May.

Gold prices in New York fell to a three-week low as energy costs eroded the appeal of the metal as a hedge against inflation. Silver also tumbled.

Gold has generally moved in lockstep with crude oil, which reached a two-month low today on signs gasoline demand is easing as the U.S. summer-driving season winds down. Before today, gold had climbed 23 percent this year, while oil gained 20 percent.

``You have to blame it on oil,'' said Leonard Kaplan, president of Prospector Asset Management in Evanston, Illinois. ``The market believes that inflation is going to be contained. The funds are losing their taste for commodities.''

Gold futures for December delivery fell $13.70, or 2.1 percent, to $625.30 an ounce on the Comex division of the New York Mercantile Exchange, the lowest since July 24. Prices are down 3 percent this week.

Silver futures for September fell 29 cents, or 2.4 percent, to $11.995 an ounce, the lowest in two week. Prices still are up 35 percent this year.

A futures contract is an obligation to buy or sell a commodity at a set price for delivery by a specific date.

Demand for gasoline fell 1.7 percent last week, the biggest most since April, the U.S. Energy Department said yesterday. Gasoline futures have dropped 17 percent since Aug. 2 to the lowest in more than four months.

``Gold is a little weak with crude falling,'' said Billy Flahive, a partner at Island Trading Group in New York. ``That'll ease the effect of inflation.''

Lebanon

A cease-fire between Israel and Hezbollah eased concern that Middle East oil supplies might be cut. The United Nations plans to send 3,500 soldiers to southern Lebanon after more than a month of fighting.

``Tensions have eased overseas, so you don't have that factor supporting gold prices now,'' said Marty McNeill, a trader at R.F. Lafferty Inc. in New York.

Oil surged to a record $78.40 a barrel on July 14 on concern the conflict would spread in the Middle East, which pumps almost a third of the world's oil. Gold reached a two-month high of $677.50 on July 17 on speculation tensions would mount.

Traders who track the price spread between oil and gold say the precious metal is still low. Gold reached a record $873 in January 1980 when oil costs doubled in a year, sparking a surge in inflation.

In the 1970s, it took about 20 barrels of oil to buy an ounce of gold, said Dennis Gartman, gold trader, economist and editor of the Gartman Letter in Suffolk, Virginia. Now it takes about 8.8 barrels.

`Inordinately Cheap'

``This ratio has been trying to force a bottom over the course of two years, with gold inordinately cheap in relation to crude oil,'' Gartman said.

Gold may rebound on speculation the dollar will weaken. The metal usually moves in the opposite direction of the U.S. currency, which dropped for a third straight day as economic data signaled the Federal Reserve may not raise interest rates again this year.

The index of leading economic indicators unexpectedly dropped 0.1 percent in July, following a 0.1 percent gain in June, the Conference Board, a New York-based research group, said today. The index dropped at an annual rate of 1.4 percent in the past six months, the most since February 2001.

``This is a buying opportunity for gold and silver,'' Matt McKinney, a commodity broker at Infinity Brokerage Services in Chicago. ``Slowing economic growth in this country make gold look very attractive as a haven against the dollar.''

Gold rose for a second consecutive day as the dollar declined, increasing the appeal of the precious metal to those investors who view gold as a hedge against further drops in the U.S. currency.

Gold has gained 22 percent this year and the dollar has dropped 7.9 percent against the euro. U.S. reports tomorrow may show waning consumer confidence. Gold investment demand rose 19 percent in the second quarter compared with a year earlier, the World Gold Council said yesterday.

``Prospects for further dollar weakness are definitely fueling more investor buying,'' said Costanza Jacazio, an analyst at Barclays Capital in London. ``Most of the demand side has been from investor buying.''

Gold for immediate delivery climbed $1.83, or 0.3 percent, to $630.88 an ounce at 8:53 a.m. in London. Prices rose 0.7 percent yesterday.

Gold in New York rebounded from a three-week low as a decline the dollar's value boosted the appeal of the precious metal as an alternative asset.

Gold generally moves in the opposite direction of the dollar, which extended the biggest drop in two weeks against the euro after U.S. economic reports suggested the Federal Reserve may not raise rates again this year. Gold is up 23 percent this year, while the dollar has dropped 8 percent against the euro.

``The pressure on the dollar is helping gold,'' said Tom Hartmann, a commodities broker at Altavest Worldwide Trading Inc. in Mission Viejo, California. ``The dollar has fallen a bit with the Fed not having to raise rates'' while other countries are increasing rates, he said.

Gold futures for December delivery rose $6.10, or 1 percent, to $639 an ounce on the Comex division of the New York Mercantile Exchange. Prices had dropped 4.3 percent in the previous four sessions.

A futures contract is an obligation to buy or sell a commodity at a set price for delivery by a specific date.

The dollar fell against the euro and yen after reports showed U.S. consumer prices excluding food and energy eased last month while home construction dropped to the lowest level in almost two years.

Before today, gold had fallen 14 percent from a 26-year high of $732 on May 12, when the U.S. Federal Reserve signaled it would raise interest rates to curb inflation. The Fed decided last week against an 18th rate increase since June 2004 as policy makers count on slower growth to curb accelerating prices.

`Terminally Ill' Dollar

Gold may be poised to test the May highs later this year because ``the dollar is terminally ill,'' Peter Grandich, publisher of the Grandich Letter, a financial newsletter in Perrineville, New Jersey, told clients in a report today.

``Key currencies like the euro and the yen are going to see their central banks raising rates more than the U.S., which is only going to add to dollar weakness,'' Grandich said.

Gold may fall should banks in Europe sell more of the precious metal. Under an accord known as the Washington Agreement, European central banks have agreed to limit gold sales to 500 tons a year, and the banks have not reached that limit.

``There is some talk of more central bank selling in Europe because they haven't met their quota for the year,'' Hartmann of Altavest said. ``We could see some heavier selling pressure in the next month.''

European central bank sales may fall short of the 500-ton limit for the year ending Sept. 26, the producer-funded World Gold Council said today. Gold supply fell 5 percent to 832 tons as central bank sales dropped 63 percent, the council said.

Central banks in Europe have sold about 338 tons of gold this year, said Jill Leyland, an economist at the council. The agreement allows for a total of 2500 tons of gold to be sold between 2004 and 2009.

The global uncertainty in the economic and geopolitical arenas should continue to foster strong investment in gold throughout 2006, but a more stable price scenario would be needed to turn falling demand for gold jewelry, the World Gold Council (WGC) said on Wednesday.

"People buy gold as a safe-haven investment because of the general underlying climate, which is not particularly pleasant or optimistic. And that, I think, is unlikely to get better in a substantial way," WGC spokesman George Milling-Stanley told Reuters in an interview.

In its latest report, the gold industry association said it measured total gold demand for the second quarter at 801.6 tonnes, a 16 percent drop from the year-ago quarter.

It said price volatility, more than the gold price surge to 26-year highs during the quarter, hurt jewelry purchases.

"A rising price will increase investment demand and it doesn't always act as a major deterrent to jewelry demand. The uncertainty generated by the volatility is what hurts jewelry demand," said Milling-Stanley.

He pointed out that second-quarter jewelry demand fell 24 percent to 562 tonnes from last year's quarter, but in dollar terms gold jewelry demand hit a quarterly record of $11.4 billion.

India's prime wedding season during the third quarter should bolster overall demand volume, provided the recent price volatility subsides, the spokesman said.

"It really does depend on how that offset works between wedding season, where it is crucial that you have gold at your daughter's wedding, and the price volatility. If volatility settles down we can have a very good wedding season," he said.

Total second-quarter gold demand in dollar terms jumped 23 percent to $16.2 billion, also a record, bolstered by strong global investment demand which grew 19 percent to 130 tonnes.

Second-quarter investment demand increased 19 percent to 130 tonnes over the 2005 quarter and should remain robust.

Milling-Stanley said tactical factors, like a bullish investor outlook, expectations for further dollar declines, and ongoing geopolitical tensions, attractiveness as a strategic asset for portfolio diversification and ease of access via Exchange Traded Funds argue for continued gold demand growth.

Representing only 6 percent of total gold demand, ETF purchases grew in the second quarter, with gold backing ETFs at 39 tonnes and $789 million invested in the shares.

As of August 14, gold in streetTRACKS Gold Shares, the WGC's New York Stock Exchange listed product and the largest ETF, had grown to 389 tonnes worth $7.8 billion.

On the supply side, the WGC reported a 5 percent drop in the second quarter to 832 tonnes, constrained by lower central bank sales and substantial de-hedging by mining companies.

WGC reported a 63 percent drop-off in official sector sales to 53 tonnes, much less than anticipated for the quarter.

In addition, supply was hit by a more vigorous unwinding of hedges during the quarter than many observers expected.

Milling-Stanley said much of the 157 decline in net producer hedging came from Barrick Gold Corp's reversal of forward sales put on by Placer Dome, which it acquired in the first quarter.

"It did a good deal of that unwinding in the first quarter, and people expected it to continue during the year fairly steadily. But, in fact, it stepped up the pace of reducing the hedges for Placer Dome in the second quarter," he said.

The Council said mine production was nearly steady with only 2 percent growth, and gold scrap supply rose 57 percent in due largely to the higher gold price.

Spot gold averaged $627.71 per ounce in the quarter, a whopping 47 percent gain over second quarter of 2005. Gold hit a 26-year high at $730 an ounce in mid-May.

Second quarter supply/demand balance came to 52 tonnes.

Gold futures fell Tuesday at the New York Mercantile Exchange due to lower-than-expected inflation data and a continued cease-fire in Lebanon.

December gold futures settled $6.40 lower at $632.90 a troy ounce.

The contract went as low as $630.50 after news broke that wholesale core inflation unexpectedly fell in July. Wholesale prices including food and energy also came in below expectations, suggesting that inflation pressures may be easing.

The Producer Price Index for finished goods rose 0.1 percent on a seasonally adjusted basis last month, after increasing 0.5 percent in June, the Labor Department reported.

The PPI for goods excluding food and energy costs fell 0.3 percent.

September silver contract settled 7.5 cents lower at $12.085 an ounce. The contract got as low as $11.85 but managed to hold above the key $12 mark.

October platinum settled up $8.10 at $1,241.40 an ounce. September palladium settled up $6.40 at $324.70 an ounce.

Copper futures fell on speculation that a weeklong strike at Chile's Escondida copper mine could end soon as both sides continue negotiations. September copper settled down 0.95 cent at $3.5275 per pound.

September light, sweet crude oil settled down 48 cents at $73.05 a barrel. September gasoline settled up 0.11 cent at $1.9916 a gallon. September heating oil settled up 0.88 cent at $2.0235 a gallon.

September natural gas settled down 5.2 cents at $6.861 per million British thermal units.

On the New York Board of Trade, September Arabica coffee ended 2.10 cent higher at $1.0285 a pound.

The September cocoa contract finished up $4 at $1,524 per metric ton.

Futures on raw sugar in foreign ports for October settled 0.29 cent higher at 12.79 cents a pound.

On the Chicago Board of Trade, December corn gained 0.25 cent to $2.3850 per bushel. September soybeans ended 0.25 cent higher at $5.5650 per bushel. September wheat futures ended 2.75 cents higher at $3.7675 per bushel.

Gold prices declined on Tuesday with a drop in crude oil, and traders said the metal was likely to trade in a range ahead of U.S. inflation data that could give direction to the dollar.

Spot gold fell to $624.50/625.30 an ounce by 0952 GMT from $628.80/629.60 in New York late on Monday, when it had dropped to its lowest level since July 27 at $623.50 an ounce.

"There is a tendency for the market here to drift lower, looking to test support around $620 level," said David Holmes, director, precious metals sales at Dresdner Kleinwort Investment Bank.

"We think that any bigger moves will be driven by an external event, perhaps by some surprising strength in the dollar or a weakness in the oil price," he said.

Dealers were waiting for U.S. inflation data that should provide more clues about whether the Federal Reserve will resume lifting interest rates, after it held rates steady at a meeting last week following 17 consecutive rises.

If U.S. core producer prices for July, due at 1230 GMT, along with other data this week point to an acceleration in inflation, the Fed might be tempted to raise rates next month, they said.

Rising interest rates tend to boost the dollar and put pressure on gold. The dollar hugged tight ranges ahead of the data on Tuesday.

Gold came under pressure because of oil, which slipped towards $73 a barrel as a fragile truce held between Israel and Lebanon, while oil kept flowing from North America's largest field after expectations of a full shutdown for repairs.

Thousands of refugees headed home to south Lebanon and Israeli forces began pulling back from some positions they had occupied.

"With the ceasefire imposed by the U.N. in effect in Lebanon, some discounting of the war premiums on gold should be expected and it would not be surprising for gold to extend the weakness in the short term," Standard Bank said in a report.

Summer holidays slowed physical trade in Japan and its volatile price scared off jewellers in India, the world's largest gold consumer, and other parts of Asia.

Silver was also weak, but attracted buying interest from jewellers and the industrial sector after it fell on Monday to its lowest level since August 2 at $11.70 an ounce.

Spot silver was quoted at $11.91/12.01 an ounce, down from $12.10/12.20 late in New York.

Platinum edged up $1 to $1,222/1,227, while palladium rose to $315/319 an ounce from $313/318 in the U.S. market

Bema Gold Corp. posted a profit in its second quarter after reporting a loss a year ago, helped by the rising price of gold and increased production.


The Vancouver-based gold miner, which keeps its books in U.S. dollars, said Monday it earned a quarterly profit of $18.1 million, or 4 cents per share, for the three months ended June 30. That compared with a loss of $12.3 million, or 3 cents per share, a year ago.

Quarterly revenue more than doubled to $50.8 million, up from $22.4 million in the second quarter of 2005.

The average analyst estimate according to Thomson Financial had been for a profit of a penny per share, based on seven analysts.

Bema attributed the increase in revenue to the resumption of commercial production at the Refugio mine, higher gold sales at its Julietta mine and a sharply higher average realized gold price.

The company sold 83,765 ounces of gold in the quarter at an average realized price of $606 an ounce. That compared with 53,504 ounces at an average realized price of $418 per ounce in the same quarter last year.

Bema's consolidated gold production during the second quarter was 79,857 ounces at a total cash cost of $416 per ounce. In the second quarter of 2005, Bema produced 59,068 ounces of gold at a total cash cost of $314 per ounce.

Bema announced last month that its Cerro Casale copper-and-gold project in Chile will cost nearly $2 billion to build, up nearly 20 percent from an earlier estimate of $1.65 billion.

The company said the project it is trying to develop with Arizona Star Resource Corp. requires an initial capital investment of $1.96 billion and would have a project life of 17 years with a payback period of 4.9 years.

Average gold production is estimated at 990,000 ounces per year and copper production at 294 million pounds per year.

Shares of Bema, which reported its results after the close of markets on Monday, fell 11 cents, or 2 percent, to close at $5.31 on the New York Stock Exchange. They recovered 6 cents to $5.37 in aftermarket trading.

Gold fell nearly one percent on Monday as investors abandoned trading positions on weaker oil and a U.N.-brokered truce that went into effect to end five weeks of fighting in the Middle East.

Spot gold fell as low as $626.25 an ounce and was at $626.25/627.25 by 1006 GMT, compared with $632.20/633.20 late in New York on Friday.

"I can see it drifting, maybe down towards $620. Hopefully there should be some support around the $620s, if not then at around $615," a precious metals dealer in London said.

"But I would be surprised if it actually gets down that far. I think people will buy the dips again," he added.

The metal came under pressure because of oil prices, which slumped one percent after BP said it would keep half its Prudhoe Bay oilfield pumping while it carries out pipeline repairs. Easing tensions in the Middle East also caused the downfall.

Guns fell silent across southern Lebanon on Monday after the truce went into effect to end fighting between Israel and Hizbollah that killed more than 1,250 people and wounded thousands.

Diplomats expect the truce to be fragile -- tens of thousands of Israeli troops remain in southern Lebanon, and they are not expected to withdraw fully until an international peacekeeping force arrives alongside Lebanese troops.

Gold is often seen as a safe-haven investment in difficult times and a hedge against inflation.

"We continue to recommend that investors use the current weakness in gold as an opportunity to build medium-term longs," UBS Investment Bank said in a daily report.

Other precious metals also fell, while mining shares in Australia were mixed. Newcrest Mining Ltd. added 0.6 percent, gold and copper miner Oxiana dropped 2.08 percent and Lihir Gold Ltd. eased 1.03 percent.

"It's sort of breaking through the uptrend that was in place. I think that's a bit negative," said commodities analyst Tobin Gorey of Commonwealth Bank of Australia in Sydney.

Gold has yo-yoed since climbing to its highest in two months of $676 an ounce on July 17 because of the worsening conflict between Israel and Hizbollah. The metal fell to its lowest in more than three weeks around $601 a few days later.

In other metals, platinum fell to a two-week low at $1,227/1,232 an ounce from $1,240/1,245 in New York. Palladium declined to $316/321 from $317/322, while silver dropped to $11.74/11.82 an ounce from $11.87/11.95.

Silver is trapped in a range because of the current bearish mood in the market, but the metal's inherent strengths should help lift prices toward recent highs after a consolidation phase, analysts say.

A continuing deficit following booming industrial demand but moderate mine supply, growing investor interest in exchange traded funds (ETFs) and depleted global stocks are expected to give a boost to the market in the medium term, they said.

"Given the relative robustness of physical demand, it is clear to us that the weakness in silver has principally been on a risk reduction theme -- one that could revert in the coming months as investors regain their commodity appetite," Jon Bergtheil, global metals strategist at J.P. Morgan, said.

Many investors had shifted to less riskier assets such as bonds during a recent sell-off in commodities sector.

"We believe that a tactical buying opportunity exists in the short term as silver prices present a good chance to regain lost ground," Bergtheil added.

Silver surged to a 25-year high of $15.17 an ounce in May, a jump of 72 percent from the start of 2006, as speculators poured money in anticipation that an ETF, called iShares Silver Trust , would boost demand and widen the market deficit.

The fund, launched by Barclays Global investors in April, has so far accumulated a record 91 million ounces of silver.

Silver fell as much as 38 percent to $9.38 in June from the peak, but has now recovered to $11.35 an ounce -- still down 25 percent from the highs.

John Reade, precious metals analyst at UBS Investment Bank, said that for silver to rise significantly from here, the market needed to see gold gaining strength or the ETF's attracting more inflows in the coming months.

"That (the ETF) is still the biggest thing that's likely to drive silver prices substantially higher from here," Reade said.

ETFs enable investors to trade securities on an exchange and give investors a return based on commodities prices, without the need to trade futures or to take physical delivery.

SUPPORTIVE FUNDAMENTALS

The silver market was in deficit for the 17th year in a row in 2005 and some estimates suggest that silver demand would keep on surpassing its supply for at least the next three years.

Over the years, the gap has been met by above-ground stocks and analysts say that this perpetual erosion in inventories provides a rationale for higher prices.

"The fundamental premise of the silver rally is based on the conviction that stocks are no longer easily available to service the deficit and higher prices are required to bring more (scrap) supply to the market," said James Steel, analyst at HSBC Bank.

Identifiable silver stocks fell to 608 million ounces by the end of 2005 from 723 million a year earlier. The metal is also held by hundreds of millions of households in relatively small amounts, but that is unlikely to be mobilized at current prices.

This is in contrast to the gold market where high prices stimulate a jump in scrap supply. Analysts say this is because the silver market is considerably more fragmented than gold.

Growth in global industrial activity has been lifting silver demand, while its usage in other sectors is also expected to grow. But consumption in photography sector would continue to fall due to rising popularity of digital cameras, analysts said.

Jewelry and silverware demand is seen rising by four percent to 260 million ounces this year, HSBC Bank forecast.

PRICE OUTLOOK

Analysts see silver prices remaining above $10 an ounce, 43 percent more than a year ago, tracking gold prices.

"I wouldn't rule out that at some stage, we fall into the single digit, But I don't think prices below $10 are sustainable for the time being," said Wolfgang Wrzesniok-Rossbach, head of precious metals marketing at Germany's Heraeus.

"It might go there but the likelihood that it bounces back is quite high."

Some analysts see a gradual rise in prices in the medium term, but said that gold would continue to exert its influence.

A Reuters poll of 31 analysts this month forecast average silver prices at $11.25 in 2006 and $12.00 in 2007.

"Gold is the dominant metal in the precious metals complex and I don't think that we are ever going to change that. So to that degree, silver will be overshadowed," Steel said.

"But they are two different metals and ultimately, the fundamentals will divide the two."

Analysts said the mining industry had been facing problems because of rising production costs, which are expected to rise further in the coming years.

HSBC Bank forecasts mine production to increase by just one percent to 665 million ounces next year from 2006, while scrap supply is seen shrinking by five percent to 180 million ounces.

Newmont Mining Corp. disclosed Friday the government of Uzbekistan has launched a criminal investigation into the company amid a $48 million tax dispute threatening its gold operations in that country.

Newmont, one of the world's largest gold producers, did not specify in a Securities and Exchange Commission filing the criminal allegations against the Zarafshan-Newmont Joint Venture and its employees.

It acknowledged the situation has deteriorated and it has placed employees on leave during negotiations with government officials.

"At this point, the company no longer has day-to-day control over ZNJV's operations given these disputes and the threat of criminal charges against our personnel," Newmont spokesman Randy Engel said in an e-mailed statement.

Uzbek officials refused to comment.

The Uzbekistan dispute is the third international situation that Newmont has faced recently. The other two involve a jobs protest in Peru and an ongoing trial of a Newmont executive in Indonesia.

The joint venture has been fighting an order from a Uzbekistan economic court to pay about $48 million taxes and penalties to resolve two claims dating to 2002. One claim for the period between 2002 and 2004 is for $37 million and the other for 2005 is for $11 million.

Representatives of the joint venture contend it was protected from changes in tax laws by a decree; Uzbekistan tax authorities have rejected that argument. Engel said the company also is pursuing international arbitration.

Uzbekistan officials, in the meantime, have blocked the joint venture's gold shipments out of the country, and some of its assets have been seized, Newmont said. "If the Uzbek authorities continue to restrict gold shipments, ZNJV will no longer be able to maintain normal operations," Engel wrote.

In addition, the European Bank for Reconstruction and Development has told the joint venture that funds in its account were no longer available. The partnership has an outstanding debt obligation of about $20 million with the bank and the account has about $14 million, Newmont said.

The mining company has said it would consider a sale of its 50-percent interest in the joint venture, worth about $94 million as of June 30.

In recent months, Uzbek President Islam Karimov's government has pressured foreign-funded aid groups and media outlets, forcing many to leave the ex-Soviet republic.

The country's relations with the United States deteriorated markedly after Washington joined with European countries in calling for an independent probe into last year's bloody uprising in the eastern Uzbek city of Andijan.

The Uzbek government eventually expelled U.S. forces from a base in the southern part of the country that was supporting operations in neighboring Afghanistan.

Meanwhile, Newmont is defending a senior executive in Indonesia who is accused of allowing the company to dump pollutants in a bay off Sulawesi Island and last week reached an agreement with Peruvian villagers who staged a demonstration over jobs marred by the death of one protester at a mine in the Andes north of Lima.

Shares of Newmont fell $1.12, or 2.1 percent, to close at $51.75 on the new York Stock Exchange.

Based in Denver, Newmont has operations in Nevada, Australia, Peru, Indonesia, Canada, Uzbekistan, Bolivia, New Zealand and Mexico.

Brazil's CVRD, the world's leading iron ore producer, on Friday joined the bidding war for Canadian nickel miner Inco Ltd. with an all-cash offer of $17.6 billion (10.5 billion pounds), one of the biggest overseas takeover bids ever by a Brazilian company.

Flush with cash from sky-high metals and minerals prices, mining companies have been aggressively seeking to consolidate to keep up with demand from fast-growing economies such as China's.

Companhia Vale do Rio Doce, as CVRD is formally known, is offering C$86 per Inco share, or a total of C$19.9 billion ($17.6 billion), trumping all other offers.

A tie-up between the two companies would create one of the world's three largest diversified mining groups, with leading market positions in products such as iron ore, nickel, bauxite, alumina and manganese.

"Our offer surpasses those of our competitors. If shareholders accept it, we'll be creating the largest nickel producer in the world," Roger Agnelli, CVRD's chief executive, said at a news conference.

The CVRD bid tops an offer from Canadian miner Teck Cominco Inc., whose cash-and-stock bid was worth C$18.7 billion ($16.7 billion) at the market close on Thursday. Teck, whose bid expires on August 16, has said it does not plan to raise its offer.

U.S. copper producer Phelps Dodge Corp. has also bid for Inco, but its stock-heavy offer has failed to gather wide support from Inco shareholders and faces opposition from some of its own investors.

Atticus Capital, a hedge fund that owns 8 percent of Phelps, said on Friday it opposed the bid for Inco, arguing that Phelps should be sold instead.

"The reality of it is, if you look at the competing bid and who Teck is up against, who Phelps Dodge is up against, I think CVRD certainly has the winning hand here," said David Davidson, an analyst at Paradigm Capital Inc. in Toronto.

Inco declined to comment on the CVRD bid, which expires in 45 days. No one at Teck was immediately available for comment.

Asked how CVRD would react if Teck or Phelps improved their offers, Agnelli was noncommittal. But some analysts said CVRD may be prepared to pay more for Inco, whose expertise would help it develop two massive nickel deposits in Brazil.

"We think CVRD has left some additional room in their bid to manoeuvre," Bear Stearns said in a research note.

CVRD shares fell 1.77 percent to 42.19 reais in afternoon trading in Sao Paulo. Inco shares rose 2.61 percent to C$88.75 in Toronto, while Teck was up 2.1 percent at C$78.29.

PATTERN OF AGGRESSIVE BIDS

It is not the first time that CVRD, one of Brazil's most dynamic corporations, has made a hostile bid for a large foreign rival.

Last December, the Rio de Janeiro-based company took over Canadian nickel miner Canico Resource Corp. for C$933 million ($825.7 million). Previously, it tried and failed to gain control of another Canadian mining company, Falconbridge Ltd., then known as Noranda.

Already the world's largest producer and exporter of iron ore, a key ingredient in steel, CVRD has spent $10.5 billion on a variety of expansion projects around the globe in the last five years as it seeks to branch out into other metals.

Besides its takeover of Canico, it has invested in coal projects in Mozambique, Australia and Venezuela, a potassium project in Argentina and coke and coal projects in China, which is its biggest market for iron ore.

But CVRD's spending spree has raised some red flags. Moody's Investors Service and Fitch Ratings on Friday both placed CVRD's credit rating under review for a possible downgrade, citing the anticipated increase in debt from an Inco deal.

CVRD's bid for Inco caps an extremely busy summer of merger activity in the global mining sector.

On July 28, Inco gave up its battle to acquire Falconbridge after not enough shares were tendered. At the time, Inco said it would concentrate on its planned merger with Phelps Dodge. Phelps Dodge had financially backed Inco in its takeover battle for Falconbridge with Swiss-based Xstrata Plc. On Tuesday, Falconbridge's board of directors recommended shareholders accept the Xstrata offer.

Gold bounced back on Friday as buying interest resurfaced on price dips and as traders saw a limited impact on air travel and oil demand from an aircraft bomb plot.

Spot gold climbed one percent to hit an intraday high of $641.75 an ounce, up from $634.80/635.55 in New York late on Thursday, when the metal dropped more than 2 percent. It was quoted at $641.40/642.00 by 1002 GMT.

"The market seems to be waiting for something that could drive prices either up or down," said Michael Widmer, precious metals analyst at Macquarie Bank.

"Going forward ... because you have got the slowdown in the U.S. economy, because you have got interest rates peaking and because you still have inflationary pressures -- it will become more challenging for the U.S. dollar to stay strong."

"And that's positive for the gold price," he added.

Gold often moves in the opposite direction of the dollar as the metal is generally seen as an alternative investment. Safe-haven bullion is also seen as a hedge against inflation.

Oil rebounded from a three percent slump as traders saw a limited impact on air travel from an attempted trans-Atlantic aircraft bomb plot and fretted over Middle East violence.

The suspected plot raised the spectre of strikes to rival the September 11, 2001 attacks on the United States that killed about 3,000 people and came 13 months after four British Muslim suicide bombers killed 52 people on London's transport network.

"We recommend investors use any further dips in gold to build medium-term long positions... We still see gold materially higher on a three and twelve month view," UBS Investment Bank said in a daily note.

Gold rose initially on Thursday after British police uncovered the plot, but profit-taking erased most of the gains and gold tumbled to a one-week low at $633.90 an ounce.

Some dealers said gold remained attractive because of firm oil and the month-old war in the Middle East.

Israeli air raids killed 11 people in north Lebanon on Friday as the United States and France strove to clinch a draft U.N. resolution to end the month-old war between Israel and Hizbollah guerrillas.

"The general consensus is that the market is strongly supported by fundamentals at the moment," said Darren Heathcote, head of trading at Investec Australia in Sydney.

"I don't see the geopolitical problems quietening down as yet and oil prices still seem to be stubbornly high," he added.

Tokyo gold failed to catch up with gains in the spot market as speculators booked profits after pushing up the most active contract to a three-week high on Thursday. Benchmark futures on the Tokyo Commodity Exchange fell 30 yen per gram to 2,408 yen.

In other metals, platinum rose to $1,241/1,246 an ounce from $1,238/1,243 late in New York, while palladium fell $1 to $318/323 an ounce. Silver rose to $12.28/12.34 an ounce from $12.04/12.14 in the U.S. market.

Cambior Inc. reported a higher second-quarter profit on Thursday as strong gold prices more than offset lower production.

Cambior, a Montreal-based company with mines in Canada, Suriname and Guyana, said it earned $7.1 million, or 3 cents a share, in the three months ended June 30. That compared with a profit of $1 million, or nil a share, in the same period a year earlier.

Analysts, on average, had expected the company to earn 5 cents a share, according to Reuters Estimates.

The company produced 129,100 ounces of gold in the quarter, down from 172,000 ounces last year, due to lower output from its Rosebel mine in Suriname and because its Omai mine in Guyana stopped producing in September 2005.

It cost the company $326 to produce an ounce of gold, up from $273 last year due to higher energy costs.

Cambior realized an average selling price of $584 an ounce, compared with $400 last year.

Gold in New York rose to a one-week high on speculation the U.S. Federal Reserve may struggle to contain inflation after leaving interest rates unchanged, boosting the precious metal's appeal as a hedge against rising consumer prices.

Before today, gold had dropped 10 percent from a 26-year high of $732 an ounce on May 12, partly on speculation the Fed would continue to raise rates to combat inflation. The Fed yesterday kept its benchmark lending rate at 5.25 percent, pausing after 17 straight increases since June 2004.

``The worry is that the inflation will continue,'' said Marty McNeill, a trader at R.F. Lafferty Inc. in New York. ``That will help out the metals, including gold.''

Gold futures for December delivery climbed $4.70, or 0.7 percent, to $662 an ounce on the Comex division of the New York Mercantile Exchange. Prices earlier reached $666.50, the highest since Aug. 2. Prices are up 51 percent from a year ago.

Silver futures for September climbed 31 cents, or 2.5 percent, to $12.57 an ounce. Prices have jumped 79 percent in the past year.

A futures contract is an obligation to buy or sell a commodity at a set price for delivery by a specific date.

``Some inflation risks remain,'' the Fed said in a statement yesterday. The likelihood of further rate increases depends on the outlook for inflation and growth, the central bank said.

Signals on jobs and energy costs still indicate accelerating inflation, some metals analysts said. Labor costs in the first quarter rose the most since the end of 2004. Crude-oil prices have climbed above $77 a barrel this week on U.S. supply concerns.

``All the inflation data suggests it's still there,'' said Mike Armbruster, co-founder of Altavest Worldwide Trading Inc. in Mission Viejo, California. ``A dovish tone means the Fed has lost inflation-fighting credentials.''

Gold reached a record $873 an ounce in January 1980 after oil costs doubled in a year, sparking a surge in the inflation rate.

Gold also gained as the dollar weakened against the yen and euro. The metal generally moves in the opposite direction of the U.S. currency. Gold is up 28 percent this year, while the dollar has fallen 7 percent against a basket of six major currencies.

``The dollar is a lot weaker, and that helps gold a bit,'' said McNeill of R.F. Lafferty.

Worry over inflation and an age-old quest to possess objects of desire have teamed to drive up gold prices, say mining executives and sector analysts.

Gold, which sells for around $640 an ounce, rose to a 26-year high of $730 an ounce in May as investors seeking more tangible assets flooded commodities markets.

"In just a year, from the 2005 to the 2006 June quarter, the quarterly average Australian dollar gold price has risen from A$556 to A$840 an ounce," Sandra Close, a gold analyst for Surbiton Associates said on the side of the Digger and Dealers mining conference.

Gold's role as a safe-harbour investment and its negative correlation with the U.S. dollar is putting new shine on one of the world's oldest commodities, analysts said.

Gavin Wendt, a mining analyst for sector research group Fat Prophets said demand for gold was increasing in step with rising oil prices and looming inflation, as more investors saw bullion as a safe bet against a devalued dollar.

Labelled by some as a currency of last resort, gold can perform well when other markets sour, as the metal tends to trade inversely to the U.S. dollar.

Ian Smith, managing director of Newcrest Mining Ltd. said gold could trade as high as $1,000 an ounce if the current investment climate persists.

"This is certainly in the realm of reality," Smith said.

Gold recorded its highest selling price of around $850 an ounce in 1980.

Meanwhile, a lack of investment in new mines by gold miners in the 1990s as bullion prices lagged meant that new supplies of gold were lagging demand, driving up the price, Wendt said.

The price of gold has mostly gone up since 2001, a tumultuous year, when a 20-year bear trend was snapped. Gold that year rallied by as much as 76 percent.

"I look at a gold mine as an ATM (automatic teller machine)," Tommy McKeith, chief executive of Troy Resources N.L., which mines about 100,000 ounces of gold a year from lodes in Australia and Brazil.

Eventually, gold miners would develop more mines, which will create more of a supply and demand balance, according to Goodlace.

Gold Fields Ltd. said strong demand from investors and a healthy gold jewellery market were temporarily propping up bullion prices, Terence Goodlace, head of operations for the world's fourth biggest gold miner said.

"We see gold in the longer term at around $475 an ounce," Goodlace said. "In the short term we see a strong gold price, but ultimately we see it coming down.

Goodlace said Gold Fields was exploring for new lodes globally, including in South Africa, Venezuela, Australia and China.

Gold investment dates back thousands of years. The Sumer civilisation of what is now Iraq first used gold to create jewellery in around 3000 B.C., employing forging techniques mastered by the Egyptians.

Gold declined to the lowest in more than a week on speculation the U.S. Federal Reserve may increase interest rates further, eroding bullion's appeal as an alternative investment.

Policy makers yesterday kept the benchmark U.S. rate at 5.25 percent while indicating they may raise rates further should inflation accelerate. Higher interest rates draw investors to the dollar and fixed-income assets, eroding gold's attraction.

``The Fed left all options open for further rate hikes,'' said Tobias Merath, an analyst at Credit Suisse Group in Zurich. They are ``determined to keep inflation low and that is negative for precious metals.''

Bullion for immediate delivery dropped $1.33, or 0.2 percent, to $641.22 an ounce at 10:08 a.m. in London. It earlier fell as low as $635.59, the lowest since Aug. 1. Gold futures for December delivery fell $4.10, or 0.6 percent, to $653.20 on the Comex division of the New York Mercantile Exchange.

``The possibility of further rate increases is the biggest factor pushing gold down today,'' Kazuhiko Saito, a commodity strategist at Interes Capital Management in Tokyo, said by phone.

The Fed kept the benchmark rate on hold after 17 consecutive increases as it predicted that price pressures will ease because of past moves.

``Some inflation risks remain,'' the FOMC statement said. ``The extent and timing of any additional firming that may be needed to address these risks will depend on the evolution of the outlook for both inflation and economic growth, as implied by incoming information.''

The precious metal will probably trade between $620 and $660 an ounce in the next two or three weeks, Merath said.

Among other precious metals, platinum fell $3.50 to $1,237.50 an ounce, while palladium declined $3 to $318. Silver fell 2 cents to $12.16.

Gold and silver prices fell slightly as the Federal Open Market Committee decided to pause, as widely expected, in raising interest rates.

December gold settled down $2.20 at $657.30 an ounce.

September silver settled 0.5 cent lower at $12.26 an ounce.

Many precious metals analysts did not expect more than a short-term and possibly subdued reaction from gold once the Fed decision was made public, said John Nadler, rate-tightening cycle decision analyst at Kitco Bullion Dealers.

He added that factors such as the conflict in between Israel and Hezbollah, the "developing civil war in Iraq, the absolute intractability of Iran, and the prospects of $4 per gallon gasoline being just around the corner are certainly posing more of a challenge to asset allocators than what may well be the last in a series of interest rate hikes _ that is, if it takes place at all."

October platinum settled $10.90 lower at $1,256 an ounce.

September palladium settling $3.80 lower at $323.75 an ounce.

September copper settled down 0.85 cent at $3.6020 per pound.

Gold advanced above $650 an ounce on Monday, aided by strong oil prices, violence in the Middle East and a softer dollar on the view that another U.S. interest rate rise is unlikely this week.

Market players said trading was cautious ahead of the U.S. Federal Open Market Committee's rate-setting meeting on Tuesday. Lower rates tend to hurt the dollar and lift gold's allure as an alternative investment.

Gold rose as high as $651.00 an ounce before easing to $649.00/649.65 by 1423 GMT, up from $644.00/$645.50 late in New York on Friday.

"Overall, the picture is still quite good (for gold). The Federal Reserve has got its meeting this week and the consensus is more or less for constant interest rates," said Michael Widmer, analyst at Macquarie Bank.

"It's becoming very difficult for the dollar to stay strong. The Middle East is still an issue," he added.

The dollar flirted with a two-month low against a basket of currencies as investors positioned for an expected pause by the Federal Reserve in its two-year campaign of interest rate hikes.

"We believe that a weaker dollar will be one catalyst for higher precious metals prices over the next twelve months," said John Reade, precious metals analyst at UBS Investment Bank.

The metal also got support from oil prices, which surged above $77 a barrel as BP began shutting an Alaskan field that pumps 8 percent of U.S. crude and anxiety over the Middle East, supplier of almost a third of the world's oil, ran high.

Lebanon's prime minister, choking back tears, demanded a "quick and decisive ceasefire" on Monday after an Israeli air raid that he said killed more than 40 civilians sheltering from fighting in a southern village.

As diplomatic efforts to end the 27-day-old war between Israel and Hizbollah guerrillas stalled, air raids elsewhere in Lebanon killed at least 19 people.

VOLATILE PRICES HELP MINERS

Dealers said gold was expected to trade in a broad range in the short term, but might return towards a 26-year high of $730, recorded in May, in the medium term.

Choppy prices have helped bullion exchanges to attract more business while mining companies gained from high prices.

Volatile gold prices lifted trade on Dubai's fledgling gold futures exchange to more than 100,000 contracts worth $2.2 billion in May and June, the exchange's latest figures showed.

But Dubai's gold imports fell 21 percent in the second quarter to 127,914 kg (282,000 lb) against the same period last year, while exports rose 32 percent to 75,372 kg, the Gulf emirate's commodities centre said.

Net profits at African gold miner Randgold Resources almost doubled in the second quarter of the year, with results buoyed by high prices and a new mine in Mali.

World number three gold miner, AngloGold Ashanti, said it was leaving an increasing amount of its output unhedged to take advantage of soaring gold prices.

Newmont Mining Corp., the world's second largest gold producer, said it saw prices between $600 and $650 for the rest of 2006 before rising in 2007.

In other metals, platinum was at $1,247/$1,253 an ounce, compared with $1,242/$1,246 in the U.S. market, while palladium fell to $321/$326 an ounce from $322/$327. Silver rose to $12.40/$12.45 an ounce from $12.31/$12.41.

BHP Billiton and Rio Tinto Group face a strike today at Chile's Escondida, the world's biggest copper mine, after failing to agree on how much to raise wages.

Workers at Escondida, which accounted for 8.5 percent of all mined copper last year, will walk off the job at 8 a.m. New York time, said Pedro Marin, a spokesman for the union that represents 94 percent of employees.

Copper prices in London jumped as much as 2.2 percent today, taking the gain this year to 79 percent. As much as 18 percent of global copper supply may be disrupted by strikes this year due to wage negotiations, UBS AG said in June. ABN Amro Australia Ltd. estimates that BHP Billiton and Rio Tinto get about a fifth of their profit from Escondida.

BHP Billiton and Rio Tinto ``won't want to see it offline for too long,'' said Mark Pervan, an analyst at Daiwa Securities SMBC, in Melbourne. ``This creates more tightness in the market.'' Escondida is 57.5 percent owned by BHP Billiton, the world's biggest mining company, and 30 percent by Rio Tinto, the third-largest.

Shares in Melbourne-based BHP Billiton fell 16 pence, or 1.6 percent, to 1014 pence in London at 8:26 a.m. Shares in London-based Rio Tinto fell 50 pence, or 1.8 percent, to 2756 pence. Shares in Mitsubishi Corp., which owns 10 percent of the mine, fell 2.7 percent to 2,315 yen in Tokyo.

``The strike is on,'' Marin said by phone 10 hours ahead of the planned action at Minera Escondida Ltd.

Strikes in Mexico

Copper producers worldwide have faced similar wages disputes this year. Southern Cross Corp., the fifth-largest copper producer, only regained control of its La Caridad mine in Mexico after striking workers lifted a four-month blockade, it said July 27.

The strike won't initially affect Escondida's copper production because the mine will start processing ore stockpiles, BHP Billiton spokeswoman Emma Meade said by phone. Copper is mainly used to make wires and pipes.

``Output is not affected yet because of stocks and feeding with higher grades, but stripping is delayed and will have an impact in the future,'' Meade said. She wasn't more specific.

The mine, located in Chile's Atacama Desert, was generating $1 million an hour in net operating profit after tax for BHP Billiton in May according to a May 5 note from Peter O'Connor and Jeremy Gray, analysts at Credit Suisse Group. It processes 230,000 metric tons of ore a day, and accounts for 22 percent of Chile's copper output, according to the broker.

Largest Earner

Rio got 18.5 percent of its record first-half profit from Escondida. Overall, its copper business was the largest earner in the half ended June 30, contributing $2 billion in income.

BHP will report its results on August 23. The company's base metals unit, which includes copper, was the second-largest profit contributor.

Workers want wage increases to reflect the surge in prices for copper, Marin said from the Chilean city of Antofagasta. Copper has more than doubled in a year and futures prices hit a record $8,800 a ton on the London Metal Exchange in May.

Escondida's Workers' Union No. 1, which represents 2,052 workers, rejected on Aug. 4 a management offer to increase wages by 3 percentage points above the inflation rate and pay a bonus of 8.5 million pesos ($15,670) per worker. It is seeking a wage increase of 13 points above inflation and a bonus of 16 million pesos per worker.

Chile's annual inflation rate was 3.8 percent in July.

The companies would rather pay workers a higher bonus to reflect the price jump than add to fixed costs such as wages in case copper prices fall, Daiwa's Pervan said.

International Finance Corp. owns the balance of Escondida.

South Africa' Harmony Gold posted another quarterly headline loss on Monday despite buoyant gold prices as output dipped and costs remained high.

Harmony Gold Mining Company Ltd, the world's fifth biggest gold producer, posted a headline loss per share for the fourth quarter of 52 South African cents compared to a loss of 50 cents in the previous quarter.

Harmony was expected to post headline earnings per share of 5 cents for the three months to end-June, according to the average forecast of eight analysts polled by Reuters.

Their forecasts for the headline figure -- which strips out capital, non-trading and certain extraordinary items -- ranged from a profit of 42 cents to a loss of 42 cents.

The firm, however, posted a more than doubling of cash operating profit of 645 million rand from 306 million the previous quarter.

Harmony -- the least internationally diversified of major South African gold miners with 90 percent of output from its home base -- said production fell 1.3 percent to 554,373 ounces.

Total cash costs during the quarter increased 1.1 percent to 93,968 rand per kg or $452 per ounce. This compares to $305 per ounce for rival AngloGold Ashanti, which reported on July 27.

Chief Executive Bernard Swanepoel said the firm had stepped up rates of development, which is underground work to gain access to gold deposits.

"This is a process that will continue for the next 18 months, but we expect to start reaping the benefits by the end of the fiscal year," he said in a statement.

Harmony shares, which have gained 17 percent this year, closed 1.53 percent higher in Johannesburg on Friday at 98.99 rand. The firm's New York-listed shares fell 1.2 percent to $13.95 on Friday.

Kinross Gold Corp., North America's fourth-biggest gold producer, reported record net income of $65.6 million in the second quarter, after a loss a year earlier, as gold prices climbed.

Per-share profit was 19 cents. A year ago the company reported a net loss of $16.4 million, or 5 cents a share. Sales rose 45 percent to $252.3 million, Kinross said in a statement.

Toronto-based Kinross, which mines in Canada, Brazil and Chile, sold gold at an average of $625 an ounce, up 48 percent from a year earlier. The company also said its board yesterday approved a $470 million expansion of the Paracatu mine in Brazil.

``This quarter was strong,'' John Bridges, an analyst at J.P. Morgan Securities Inc., said in a report. ``We'd be buyers of Kinross on this news,'' said Bridges, who forecast 10-cent profit and has an ``overweight'' rating on the stock.

The profit included a $2.9 million pretax gain on disposal of assets, which added less than 1 cent to per-share earnings, Kinross said. The company sold its Lupin mine in Canada to Wolfden Resources Inc. and Blanket mine in Zimbabwe to Caledonia Mining Corp.

Shares Rise

Shares of Kinross gained 30 cents, or 2.3 percent, to C$13.52 at 2:04 p.m. on the Toronto Stock Exchange. Before today, they had surged 78 percent in the past year.

Kinross was forecast to earn 12 cents, the average estimate of six analysts surveyed by Thomson Financial. Thomson didn't say what parameters were used in the estimates.

Gold futures for December delivery fell $1 to $656 an ounce on the Comex division of the New York Mercantile Exchange. Prices on May 12 reached $732, the highest in 26 years. The metal has climbed 26 percent this year, partly on demand for a hedge against inflation.

``If we get a good gold price, we will continue to perform well,'' Chief Executive Officer Tye Burt said in a telephone interview. ``We won't be spending $470 million on a new project if we weren't very bullish on the gold price.''

Paracuta Mine

The Paracatu mine expansion will boost production in 2009 through 2013 to 557,000 ounces from 180,522 ounces in 2005, Kinross said. The company, which also produces silver, raised its 2009 output estimate to between 1.8 million to 1.9 million gold equivalent ounces from 1.7 million and 1.75 million ounces.

Output this year will be the equivalent of 1.44 million ounces of gold, Kinross affirmed. Cost estimates were increased in May to $305 to $315 an ounce from a March forecast of $285 to $295.

Paracatu, which is now one of Brazil's largest gold mines, ``is expected to be one of the western hemisphere's largest gold mines,'' Chief Operating Officer Tim Baker said in the statement.

To finance the expansion, Kinross increased its existing $295 million revolving credit facility to $300 million and extended the maturity date to August 2009 from April 2008. It's also negotiating for a 5 ½-year loan of up to $250 million.

Production fell 6.8 percent to the equivalent of 385,514 ounces of gold after the Kettle River mine in Washington state was closed and output declined at the Kubaka mine in Russia, Kinross said.

The cost of producing the equivalent of an ounce of gold rose 16 percent to $311 as the Canadian dollar, the Brazilian real and the Chilean peso rose against the dollar. Kinross has costs in local currencies to mine ore and sells metals in dollars. Expenses for fuel, power and labor also increased, the company said.

Crown Resources

Kinross has agreed to buy Wheat Ridge, Colorado-based Crown Resources Corp. for $173.1 million in stock to gain a gold deposit in the state of Washington. Crown shareholders will get 0.32 of a Kinross share, or $3.76 a share based on yesterday's closing price, if the deal goes through.

Crown shares rose 5 cents, or 1.4 percent, to $3.65 in over-the-counter trading. They have risen 87 percent in the past year.

The planned purchase, first announced in October 2003, has been stalled by an independent review of the valuations of Kinross's 2003 acquisitions of TVX Gold Inc. and Echo Bay Mines Ltd., which was requested by U.S. regulators.

The acquisition of Crown's Buckhorn Mountain gold deposit in north central Washington state would allow Kinross to restart its Kettle River milling facility.

Kinross needs at least two-thirds of the outstanding Crown shares to be voted in favor at the Crown shareholders meeting on Aug. 31 for the deal to go through.

Kinross's sales in the second quarter of 2005 were $174.6 million.

Barrick Gold Corp. is North America's largest gold producer by first-quarter output, followed by Newmont Mining Corp. and Freeport-McMoRan Copper & Gold Inc.

Profits in China's gold mining sector surged more than 53.21 per cent in the first half from a year ago, buoyed by bullish gold prices, but the pace is expected to slow in the second half.

The sector's profits reached 2.47 billion yuan (US$308.8 million) from January to June, according to statistics from the China Gold Association on Friday.

The growth was much faster than that of gold production in China and the sector's output value, the Beijing-based gold association said.

First-half gold production rose by 6.33 per cent to 106.03 tons. Meanwhile, the sector's output value expanded by 22.64 per cent to 22.15 billion yuan (US$2.77 billion).

"The blistering profit growth should be largely attributed to strong gold prices in the first half of this year," said Lu Wenyuan, vice-chairman of the gold association.

But Lu told China Daily that profits in the second half would gear down.

At the Shanghai Gold Exchange, the sole national bourse for the precious metal, the price of aurum-99.99 gold bullion closed at 165.45 yuan (US$20.68) per gram on Friday, down 0.6 per cent from Thursday. But it represented a 15 to 20 per cent increase compared to January.

Domestic gold prices fluctuate in line with changes on the international gold market. International gold prices are now hovering at around US$650 per ounce (equal to 31.035 grams), up from some US$550 at the beginning of this year. In May, prices reached a 26-year high of US$730 per ounce.

Cui Lin, an analyst with Antaike Information Development Co Ltd, the Beijing-based metal industry consultancy, predicted gold prices at home and abroad would continue on the upward trend in the second half due to the weakening US dollar and soaring oil prices.

"International gold prices will possibly get to the first-half peak again in the second half," Cui said.

According to a government-set goal revealed in April, China's gold production is expected to reach 240 tons this year, up 7 per cent from 2005.

The nation's demand for gold has also seen growth this year.

Combined gold demand in the form of jewellery and retail investment on the Chinese mainland increased by 2 per cent to 68.4 tons in the first quarter of this year, according to data provided by the World Gold Council based in London.

The gold council's Beijing office said it would release the mainland's figures for first-half gold demand later this month.

Gold and silver prices jumped in European trade as the dollar fell sharply after U.S. government data showed the economy created fewer jobs that expected in July.

"The weaker jobs number has slashed the chances of an FOMC (Federal Open Market Committee) rate rise and that in turn has affected the currency markets and galvanised the precious metals," James Steel, analyst at HSBC Bank, said.

"Gold may be vulnerable to some profit-taking towards the end of the day, but both the markets remain in a short-term bullish uptrend," he said, referring to gold and silver.

Gold hit a high of $654.10 an ounce before moving to $651.00/652.50 by 1500 GMT, against $646.50/648.00 late in New York on Thursday and a two-week high of $655.45 on Wednesday.

Silver climbed more than five percent to a two-month high of $12.56 an ounce and was later quoted at $12.44/12.54, versus $12.04/12.14 in the U.S. market.

The dollar fell to a two-month low against the euro on the employment report, which was the last major piece of economic data before the FOMC meets on August 8 to decide whether to continue its two-year-long series of quarter-percentage point rate rises.

Higher rates tend to boost the dollar and pressure gold.

Dealers said gold was expected to trade in a wide range, with the metal getting support from the Middle East conflict.

"Given the thin summer market conditions, trade is expected to be volatile with unpredictable sharp moves, but the metal should find underlying support from the continuing conflict," Standard Bank said in a report.

Hizbollah fired more rockets at Israel on Friday and Israeli air strikes destroyed four highway bridges north of Beirut.

The physical sector saw sales of scrap gold from parts of Asia, and dealers said jewellery makers were waiting for the price to fall back to around $600, a level last seen in June, before returning to the market.

Premiums for gold bars were zero to the spot London price in Singapore, while in Hong Kong gold bars were offered at a discount of up to 20 U.S. cents an ounce.

In other metals, platinum rose to $1,242/1,247 an ounce from $1,237/1,241 in New York on Thursday, while palladium was at $324/328, up from $322/327 an ounce.

In industry news, Anglo American Plc, the world's third-largest miner, reported a 52.5 percent jump in first-half operating profit and said it was upbeat on the outlook for platinum, gold and other metals prices for the second half of this year.

The world's fourth-biggest gold producer, Gold Fields Ltd, posted a 42 percent gain in fourth-quarter profit on Thursday, boosted by bullish gold prices but still sharply below analysts' forecasts.

South Africa's Gold Fields said adjusted earnings per share, excluding the effects of financial instruments and foreign debt, for the three months to June rose to 108 South African cents from 76 cents in the previous quarter.

The firm was expected to post a 76 percent rise in EPS to 134 cents, according to the average estimate of eight analysts polled by Reuters. Their estimates were in a range of 114-173 cents.

"In general it is a very poor showing," said analyst Leon Esterhuizen at Investec Securities in Johannesburg.

"It's really all about operational performance that's lagging. South African production was essentially flat while the offshore production was volume-wise flat with grades declining."

Output should have increased since traditionally the first three months of the year are the worst, he added.

Gold Fields shares, which have gained 35 percent so far this year, rose 1.27 percent to 155 rand by 0719 GMT, outperforming a 0.89 percent rise in the gold mining index.

PRODUCTION EDGES LOWER

Production was barely changed at 1.018 million ounces, down from 1.023 million last quarter, with output up 4 percent at South African operations and down 7 percent at international mines.

A rally in the gold price, which has surged 50 percent over the past 12 months and 26 percent since the start of the year, was a key reason for the jump in profits.

Gold Fields sold its gold for 128,974 rand per kg, up 18 percent from the previous quarter while total cash costs rose by 5.2 percent to 77,187 rand per kg.

"We are particularly pleased that we have been able, through effective cost control, to see a significant part of the higher gold price flow through to the bottom line," Chief Executive Ian Cockerill said in a statement.

Gold Fields -- which operates mines in South Africa, Ghana, Australia and Venezuela -- along with rivals has been fighting sharply rising prices for inputs due to a global surge in mining activity.

The firm said operating profit rose 40 percent to 1.66 billion rand while the group operating margin increased to 38 percent from 32 percent.

Gold Fields said production for the first quarter to the end of September was expected to be "marginally higher" than for the June quarter. "Total cash costs should also increase due to the wage increases at South African operations," it said.

Gold prices retreated Thursday as central banks in Australia and England raised interest rates and crude oil prices slipped, prompting a decline in shares of metals miners.

George Gero, vice president of global futures with RBC Capital Markets and a metals trader, said the interest rate hikes abroad stoked concerns of yet another interest rate increase in the U.S. when the Federal Reserve meets Aug. 8. The Federal Reserve has increased short-term interest rates 17 consecutive times to 5.25 percent, the highest level since April 2001.

Higher interest rates typically support higher currency prices; gold, instead, tends to rise during a period of declining dollar value.

Oil prices also fell Thursday.

"Most funds operating in these markets tend to sell things in tandem," said Gero. "When they sell gold, they sell crude. Gold is a hedge against higher crude prices and geopolitical events."

December gold, the most active contract, fell $10.60 to $653.50 in afternoon trading on the New York Mercantile Exchange. A barrel of light, sweet crude oil was down 86 cents at $74.95 on the exchange.

Shares of Harmony Gold Mining Co. fell 33 cents, or 2.3 percent, to $14.17 on the New York Stock Exchange. Goldcorp shares shed 46 cents, or 1.5 percent, to $30.43, while shares of Newmont Mining Corp. dropped 48 cents to $52.31.

Gold may rise to $700 an ounce in the second half of this year as oil prices gain on Middle East tensions and the pace of U.S. interest rate increases slows, said Toshimitsu Kawanabe from Japanese broker Taiheiyo Bussan Co.

``That's as long as the metal doesn't fall below $600 an ounce this month,'' said Kawanabe, 48, the commodity brokerage's chief analyst who uses charts to help predict price direction. Gold for immediate delivery reached a 26-year high of $730.40 an ounce on May 12 and traded at about $650 on Thursday.

Global energy costs may increase as Iran confronts the U.S. and Europe over its nuclear program and fighting between Israel and Hezbollah in Lebanon escalates. Iran has threatened to disrupt oil exports if the standoff worsens. The country is the fourth-biggest producer behind Saudi Arabia, Russia and the U.S.

Gold has risen 49 percent in the past year as investors diversify their assets away from bonds, stocks and currencies and record oil prices contribute to higher inflation. Some investors buy precious metals in times of inflation or political conflict between nations as a store of value and a hedge.

Oil prices traded at $75.60 a barrel on Thursday, near a record high of $78.40 reached on July 14.

A UN Security Council resolution passed on July 31 gives Iran a month to end nuclear enrichment activities or face the threat of economic penalties. Israel retaliated against Hezbollah, after the Shiite Muslim group captured two Israeli soldiers on July 12. It's sent ground troops into Lebanon to clear Hezbollah gunmen from their strongholds near the border.

Strengthening Yen

The yen may gain against the dollar after Bank of Japan policy board member Atsushi Mizuno signaled the central bank may raise interest rates again this year. Japan's currency has risen 1.5 percent since the central bank lifted rates July 14 for the first time in almost six years.

At the same time the pace of interest rate increases in the U.S. may be slowing after a government report last week showed the U.S. economy expanded less than analysts had forecast in the second quarter and reduced the chances the Federal Reserve would raise interest rates.

``The three main factors to consider in the remainder of the year in terms of gold are a weak dollar, crude oil prices and inflation,'' said Kawanabe, who joined Taiheiyo Bussan in 2001 and was previously a sales manager at Mitsubishi Corporation Futures & Securities Ltd.

Dollar Move

Gold futures surged to $873 an ounce in 1980, when U.S. consumer prices jumped more than 12 percent. The precious metal has moved counter to the U.S. currency, rising 25 percent this year, while the dollar has dropped 8.3 percent against the euro.

A price for the precious metal of around $700 an ounce is a realistic figure at some point over the rest of this year, said Kawanabe. The idea of gold bullion at $1,000 an ounce, at least this year, is ``pretty difficult,'' he said.

``For that to happen, crude oil would have to push through $80 a barrel, and rise to $100,'' he said.

Barrick Gold Corp., which bought Placer Dome Inc. in March to become the world's biggest gold producer, said second-quarter net income surged to a record $459 million as output rose and bullion prices rallied.

Per-income was 53 cents, compared with net income of $47 million, or 9 cents a share, a year earlier, Toronto-based Barrick said today in a statement. Sales more than tripled to $1.6 billion.

Chief Executive Gregory C. Wilkins opened new mines in Argentina and Australia, helping to boost output by 80 percent to 2.1 million ounces. Barrick gained mines in Australia, South Africa, Tanzania and Nevada from its $10 billion acquisition of Placer Dome. Gold from Barrick's mines sold on average at $592 an ounce, up 40 percent.

``The Placer acquisition has improved the company, giving them more avenue for growth,'' said Joseph Foster, who manages $415 million at Van Eck International Investors Gold Fund, which has risen 77 percent in the past year and owns Barrick. ``They have probably got one of the better growth profiles among the major'' gold producers, Foster said before the results.

Shares of Barrick rose 75 cents, or 2.4 percent, to $32.20 at 4:15 p.m. on the New York Stock Exchange. Barrick has risen 28 percent in the past year compared with a 61 percent rally in the Philadelphia Stock Exchange Gold & Silver Index of 16 mining companies, including top gainer Agnico-Eagle Mines Ltd.

Analysts' Estimates

The company was expected to earn 45 cents, based on the mean estimate of 16 analysts surveyed by Thomson Financial. Thomson didn't say what parameters were used in the estimates.

Barrick kept its forecast of gold production this year unchanged at 8.6 million to 8.9 million ounces, an increase from last year's total of 5.46 million. Total cash costs will be $275 to $290 for each ounce of gold, up from $227 last year, Barrick said. The company raised its forecast for production of copper to 370 million pounds from 350 million pounds, leaving its cost estimate unchanged at 75 cents to 80 cents a pound.

Gold in New York rose 47 percent on average during the quarter to $631.19 an ounce as investors sought a hedge against inflation and diversified from stocks and bonds. Prices, which reached a 26-year high of $732 on May 12, rose 0.8 percent to $664.10 an ounce today.

The cash cost to produce gold rose 16 percent to $281 an ounce, the company said.

Gold rose for a seventh consecutive day as investors bought the metal as a hedge after the U.S. dollar weakened and crude oil prices rose.

Some investors buy bullion to hedge against inflation, which this year has been stoked by record oil prices. Gold is also more attractive as an investment when the dollar declines. The currency fell close to a three-week low against the yen and the euro on concern U.S. economic growth may be slowing.

``The U.S. dollar has potentially further downside,'' said David Baker, a partner at Baker Steel Capital Managers LLP in London, which manages $600 million in gold and other natural resources. ``Higher oil prices have positive implications for the gold price.''

Gold for immediate delivery in London rose $3.11, or 0.5 percent, to $649.92 an ounce 11:03 a.m. in London. Gold futures for delivery in December rose $2.70, or 0.4 percent, to $661.50 an ounce on the Comex division of the New York Mercantile Exchange.

Oil-producing countries have a ``high affinity for gold and may convert some holdings to gold from U.S. dollars'' as energy earnings soar, Baker said. Gold may reach $750 an ounce by the end of 2006, he said.

Oil futures on the New York Mercantile Exchange rose 33 cents, or 0.4 percent, to $75.24 a barrel. They traded at a record $78.40 on July 14.

The U.S. Federal Reserve's preferred gauge of inflation rose 2.4 percent in June, the highest measure since April 1995, a report showed yesterday.

Rising Inflation

``Rising inflation in U.S. and surging oil prices are ideal situations for gold,'' Bharath K. Rekapalli, assistant vice president at Angel Commodities Broking Pvt., said from the southern Indian city of Hyderabad.

The dollar traded at 114.51 against the Japanese currency and 1.2804 against the euro.

Growth of the U.S. economy, the world's largest, slowed to an annual pace of 2.5 percent in the second quarter, less than half the 5.6 percent rate of the previous three months.

Among other precious metals, platinum rose $5.50 to $1,250 an ounce, while palladium gained $1 to $318. Silver rose 5 cents to $11.81.