By Nicholas Larkin Dec. 5 (Bloomberg) -- Gold, little changed in London and heading for its first weekly drop since October, may rise on speculation a gain in U.S. unemployment will weaken the dollar and boost bullion’s appeal as an alternative investment. Economists predict a U.S. government report later today may show the jobless rate rose to the highest level since 1993, giving the Federal Reserve more reason to cut interest rates. Gold has fallen 7.5 percent this year as the U.S. Dollar Index, which tracks the currency against six trading partners, gained 13 percent. Bullion generally moves in the opposite direction to the U.S. currency. “The dollar could come under pressure and logically gold should benefit,” Afshin Nabavi, a senior vice president at MKS Finance SA, one of Switzerland’s four bullion refiners, said by phone from Geneva. “When unemployment keeps on rising, it’s not very good for the dollar.” Gold for immediate delivery added $3.55, or 0.5 percent, to $770.55 an ounce by 9:50 a.m. in London. February futures were $5, or 0.7 percent, higher at $770.50 in electronic trading on the Comex division of the New York Mercantile Exchange. U.S. payrolls shrank by 333,000 workers in November after drop of 240,000 in the previous month, while the jobless rate jumped to 6.8 percent, according to Bloomberg surveys of economists. The Labor Department will release the report at 8:30 a.m. in Washington. Bullion is down 5.8 percent this week in London. Deflation Concern “Trading may be tentative ahead of the key U.S. payroll data,” Leon Westgate, a London-based analyst at Standard Bank Ltd., wrote in a note today. “However, mounting fears over the impact that a potential period of deflation may have on prices, appear to be weighing on sentiment.” Speculative gold positions on Comex have more than halved from record levels reached earlier this year, while physical holdings in exchange-traded products remain high, Barclays Capital said in a report late yesterday. “As a safe-haven asset, investors have chosen to retain their exposure to gold as a physical asset rather than maintain paper exposure, even though inflationary concerns have eased,” it said. The bank expects “the dollar to strengthen in the near term, which could cap gold’s upside potential.” Gold in the SPDR Gold Trust, the largest exchange-traded fund backed by bullion, fell by less than 1 metric ton to 757.89 tons as of yesterday, according to data on the company’s Web site. The fund was at a record 770.64 tons on Oct. 13, overtaking Japan as the world’s seventh-largest holder of gold. Among other metals for immediate delivery in London, silver rose 0.3 percent to $9.5250 an ounce. Platinum added $2.25, or 0.3 percent, to $798.75 an ounce, and palladium was 25 cents, or 0.2 percent, higher at $170.75. To contact the reporter on this story: Nicholas Larkin in London at nlarkin1@bloomberg.net

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