By Millie Munshi

July 31 (Bloomberg) -- Gold gained the most in three weeks after a report showed weaker-than-expected U.S. growth during the second quarter, sending the dollar tumbling and boosting the appeal of the metal as an alternative investment. Silver rose.

The economy grew at a 1.9 percent annualized rate, the Commerce Department said today, sending the dollar down as much as 0.8 percent against the euro. Gold, sometimes used as a safe- haven investment, rose to a record in March as the U.S. currency headed for record lows and the economic outlook dimmed.

The rise in the precious metal is ``certainly coming off the dollar after the GDP report,'' said Leonard Kaplan, president of Prospector Asset Management in Evanston, Illinois. ``Gold looks very strong right now.''

Gold futures for December delivery rose $13.70, or 1.5 percent, to $926 an ounce at 10:48 a.m. on the Comex division of the New York Mercantile Exchange. A close at that price would be the biggest gain for a most-active contract since July 11.

Economists were expecting the U.S. to grow at a 2.3 percent rate, according to the median of 79 estimates in a Bloomberg News survey. The dollar dropped to as low as $1.5688 per euro.

Gold, priced in dollars, generally moves in the opposite direction of the U.S. currency. The metal reached a record $1,033.90 an ounce in March as the dollar headed to an all-time low of $1.6038 per euro on July 15.

Haven Asset

The precious metal may be insulated from a slowing global economy as investors turn to gold as an alternative to the dollar and as a haven asset, Evan Smith, who helps manage $1.5 billion at U.S. Global Investors Inc. in San Antonio, said yesterday.

Prices may rally later this year, according to Barrick Gold Corp., the world's largest gold producer.

``Inflationary pressures'' will continue to drive gold higher, Barrick Chief Financial Officer Jamie Sokalsky said today on a conference call with investors. ``The outlook for gold continues to be very positive.''

Prices will be boosted by rising geopolitical tensions, continued concerns about the financial and credit crisis, and constraints on gold supply, Barrick said.

The surging cost of gold, which has more than doubled since 2003, has boosted profit for mining companies. Barrick said today second-quarter profit increased 22 percent amid soaring prices for bullion.

Silver Gains

Silver also advanced after China said it will remove an export rebate on the precious metal.

``It is likely that the abolition of the rebate will depress exports'' from the Asian country, analysts at Barclays said in a report today.

Silver futures for September delivery added 29.5 cents, or 1.7 percent, to $17.76 an ounce on the Comex. Silver has gained 17 percent this year before today.

China is the worlds' third-largest silver producer, according to Barclays. The country also removed an export rebate on zinc. The move comes as China steps up efforts to cut a record trade surplus.

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Gold Futures Climb to two-and-a-half-month High

By Atul Prakash and Bate Felix

LONDON (Reuters) - Gold fell more than 2 percent in a broad commodities sell-off on Friday, with a rise in the dollar and softer oil prices dampening the metal's allure as an alternative investment.

Other key precious metals, base metals and major soft commodities traded lower, with investors pocketing profits before the end of the quarter.

Gold fell to $926.50 before rising to $933.30/934.20 an ounce at 11:40 a.m. EDT, against $951.80/952.60 in New York late on Thursday. Last week, it hit a record high of $1,030.80 an ounce before tumbling to a one-month low of $904.70.

"The market is really correcting itself, but it's a general move out of commodities. It's not just gold," said Jeremy East, head of metals trading at Standard Chartered Bank.

The market witnessed a heavy sell-off last week before rebounding on technical buying. Now it was witnessing a continuation of the downward trend, with people liquidating their positions and running for cash, East said.

"But I don't think the bullish trend is over. There is still buying interest, but in the short term the market has probably overdone on the upside. We are in a consolidation phase and gold may break back down below $900 again."

The dollar edged higher but hovered not far from record lows against the euro after U.S. data showed inflation pressures were tame in February, affirming expectations of further interest rate cuts by the Federal Reserve to boost a weakening economy.

A firmer dollar makes gold costlier for other currency holders and often lowers demand. Lower oil prices reduce the metal's appeal as a hedge against inflation.

Oil fell more than $2 to near $105 a barrel as crude flows through Iraq's pipeline system were restored after disruption by a bomb attack on Thursday.

"It's going to take until the second half of the next week before the market is going to be ready to make a more convincing push upward again."

U.S. gold futures for April delivery fell $16.6 an ounce to $932.20 -- off last week's record of $1,033.90.

LONG-TERM POSITIVE

Analysts were positive on the metal's outlook in the medium to long term.

"The sudden price pull-back across the precious metal complex during March has raised concerns that the bull run in this sector has drawn to a close. We disagree," said Michael Lewis, global head of commodities research at Deutsche Bank.

"We believe weakness in the U.S. dollar has not been exhausted and with U.S. real interest rates expected to move deeper into negative territory, we are maintaining our bullish outlook towards gold and silver prices," he said in a report.

In other metals, spot platinum rose to a one-week high of $2,040 an ounce before falling to a low of $1,980. It was last at $2,010/2,020, versus $2,023/2,033 in New York. It struck a record high of $2,290 on March 4 on supply fears driven by mining disruptions in top producer South Africa.

Platinum gained around 50 percent in 2008 after a power crisis in South Africa forced gold and platinum mines to shut down for five days in January, driving platinum prices.

But the metal, mainly used in jewelry and auto catalysts to clean exhaust fumes, tumbled to a six-week low at $1,805 an ounce last week.

Silver fell to $17.93/17.98 from $18.50/18.55 an ounce -- off a 27-year high of $21.24 hit on March 17. Palladium dipped to $439/446 an ounce from $445/450.

(Reporting by Atul Prakash; editing by Chris Johnson)

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