By Nicholas Larkin and Glenys Sim Dec. 18 (Bloomberg) -- Gold gained in London, paring a third weekly decline, as a weaker dollar prompted investors to buy bullion after the metal’s biggest drop in almost two weeks. Bullion yesterday fell below $1,100 for the first time since Nov. 10 and dropped 3.4 percent, the most since Dec. 4, as the U.S. Dollar Index rose to a three-month high. The index, a six-currency gauge of the greenback’s value, fell as much as 0.4 percent today. Gold has dropped 11 percent since climbing to a record $1,226.56 an ounce on Dec. 3. “Gold is recovering as the dollar has given back some of its gains made over the last few days,” said Peter Fertig, owner of Quantitative Commodity Research Ltd. in Hainburg, Germany. “The fall yesterday below $1,100 an ounce is an attractive level for some bargain hunters.” Gold for immediate delivery added $7.17, or 0.7 percent, to $1,106.07 an ounce at 9:27 a.m. local time. The metal is down 0.8 percent this week. Bullion futures for February delivery on the New York Mercantile Exchange’s Comex unit were little changed at $1,106.90 an ounce. “We’re seeing quite a bit of buying interest, including physical demand, after the big drop yesterday,” said Wallace Ng, chief dealer at Fortis Bank’s commodity-derivatives unit. “There was a bit of panic selling as people jumped out of everything else into the dollar” yesterday, he said. “Physical buyers should keep the market supported above $1,000.” Weekly Decline Gold is set for a third weekly decline as the dollar index has added 1.3 percent, heading for a third weekly increase. Bullion typically moves inversely to the U.S. currency. Bullion is still up 26 percent this year, heading for its ninth straight annual gain, as low U.S. interest rates and increased government spending depressed the dollar. U.S. Federal Reserve officials said after a two-day meeting this week that financial markets are healthy enough to remove most emergency aid and kept a pledge to keep interest rates “exceptionally low” for an “extended period.” “We think that investment demand is likely to remain strong,” said Stefan Graber, Singapore-based analyst at Credit Suisse Group AG, citing low real interest rates and an expectation that the dollar may resume its decline. Real interest rates are typically defined as the interest rate less inflation. Gold holdings in the SPDR Gold Trust, the biggest exchange- traded fund backed by the metal, were unchanged at 1,120.51 metric tons yesterday, its Web site showed. They reached a record 1,134 tons on June 1. Gold held in ETF Securities Ltd.’s exchange-traded products declined 0.4 percent to 7.85 million ounces yesterday, its Web site showed. Among other precious metals for immediate delivery in London, silver rose 0.7 percent to $17.26 an ounce. Platinum gained 1 percent to $1,437 an ounce, while palladium added 1.2 percent to $365.02 an ounce. To contact the reporters on this story: Glenys Sim in Singapore at gsim4@bloomberg.net; Nicholas Larkin in London at nlarkin1@bloomberg.net

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