Gold gained for the first time in three days in London as some investors bought the metal after its drop to a six-week low and as a weaker dollar spurred demand for an alternative asset.

The dollar was little changed after earlier today touching a three-week low versus the euro on speculation the European Central Bank will raise interest rates this week. European finance ministers on July 2 authorized an 8.7 billion-euro ($12.6 billion) loan payout to Greece by mid-July after the nation’s parliament passed austerity measures.

“The precious metal has benefited from a mix of bargain hunting and stronger euro,” said James Moore, an analyst at TheBullionDesk.com in London, in a report. “Trade today is likely to be relatively thin and choppy due to the U.S. holiday.”

Immediate-delivery gold gained $5.83, or 0.4 percent, to $1,493.60 an ounce by 1 p.m. in London. The metal dropped to $1,478.83 on July 1, the lowest level since May 17. Gold for August delivery was 0.8 percent higher at $1,494.20 an ounce on the Comex in New York. Floor trading will be closed today for the Independence Day holiday.

Bullion rose to $1,495.25 an ounce in the morning “fixing” in London, used by some mining companies to sell output, from $1,483 at the afternoon fixing on July 1.

The ECB on July 7 will increase its benchmark rate to 1.5 percent from 1.25 percent, according to economists surveyed by Bloomberg News. That may boost demand for the euro. Gold typically moves counter to the greenback.

Gold’s Record

Gold is up 5.1 percent in 2011 after climbing the past 10 years, the longest run of gains in at least nine decades. Europe’s debt crisis helped bullion reach a record $1,577.57 on May 2. Finance chiefs gather next week to discuss a long-term lifeline for Greece. A proposed debt rollover plan for Greece may still put the country in “effective default,” Standard & Poor’s said.

Hedge-fund managers and other large speculators reduced their net-long position in gold futures by 18 percent to 165,902 contracts in the week ended June 28, according to U.S. Commodity Futures Trading Commission data. That’s the biggest pullback since October 2008.

“Seasonal trends tend to be positive in the third quarter for gold and this current dip offers entry opportunities for gold once technicals hint at stabilization,” Stefan Graber, an analyst at Credit Suisse Group AG, wrote in a report today.

Silver for immediate delivery rose 0.5 percent to $34.045 an ounce in London. Palladium fell 0.1 percent to $758.50 an ounce. Platinum was little changed at $1,720.50 an ounce.

To contact the reporters on this story: Nicholas Larkin in London at nlarkin1@bloomberg.net; Chanyaporn Chanjaroen in Singapore at cchanjaroen@bloomberg.net

To contact the editor responsible for this story: Claudia Carpenter at ccarpenter2@bloomberg.net

Source: http://www.bloomberg.com/news/2011-07-04/gold-silver-advance-on-speculation-euro-to-extend-gains-on-rate-increase.html