Gold rebounds as signs of China slowdown fuel demand for hedge

Gold rose for the first time in three days on signs that Chinese manufacturing will slow in May for the first time in seven months, sparking a drop in global equities and increased demand for bullion as a protection of wealth.

The preliminary reading for a Chinese purchasing managers’ index missed analysts’ estimates and came in below the level of 50, indicating a contraction. Commodities and stocks tumbled, with Japanese equities falling the most since the aftermath of the Fukushima disaster two years ago. Bullion also gained as the dollar declined the most in more than a month against a basket of currencies.

“Nervous investors are turning to gold as everything else looks very bleak today,” Carlos Perez-Santalla, a broker at Marex North America LLC, said in a telephone interview from New York. “The weakness in the dollar is supportive for gold.”

Gold futures for June delivery climbed 1.3% to $1,384.90 an ounce at 10:24 a.m. on the Comex in New York, heading for the first gain since Monday.

Yesterday, futures rose as much as 2.6% before dropping 0.7% as Federal Reserve Chairman Ben S. Bernanke testified before Congress.

“The bullion market has no real direction whatsoever at the moment,” David Govett, head of precious metals at Marex Spectron Group in London, wrote in a report today. “Moves are massively over-exaggerated due to the type of trading involved, and once these moves are done, the market generally comes back to where it started.”

Gold tumbled 18% this year through yesterday as some investors lost faith in the metal as a store of value and amid concern that the Fed may scale back economic stimulus measures.

Assets in the SPDR Gold Trust, the biggest bullion-backed exchange-traded product, dropped to 1,020.07 metric tons yesterday, the lowest since February 2009, according to data on the company’s website.

Silver futures for July delivery retreated 0.4% to $22.38 an ounce in New York.

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