* Gold buying boosted by weak dollar, $70/barrel oil
* Positive inflation outlook supports near-term prices
* Silver rises sharply, seen as cheaper option to gold
(Recasts, updates with quotes, closing prices, changes
dateline, pvs LONDON)
By Frank Tang
NEW YORK, June 9 (Reuters) - Gold futures rebounded on
Tuesday on a weaker dollar and a rally in crude oil as signs of
economic recovery should further attract inflation-hedge
buying.
The gold market looked oversold after it failed to break
above $1,000 an ounce last week, and inflation worries brewed
by $70-per-barrel oil should boost fresh investment demand,
bullion traders said.
"There is some sense that the sharp sell-off earlier in the
day yesterday was overdone ... and the positive inflation
outlook is still supporting the market," said Rob Kurzatkowski,
futures analyst at optionsXpress.
The dollar retreated after a sharp rally in the past two
sessions as investors questioned whether the U.S. economy is
strong enough to justify higher interest rates some expect by
year end, increasing buying in gold as a hedge against the U.S.
currency.
U.S. August gold futures <GCQ9> settled up $2.20 at $954.70
an ounce on the COMEX division of the New York Mercantile
Exchange.
Spot gold <XAU=> was at $954.75 an ounce, against its
previous finish of $950.05 an ounce.
Gold is often bought as a hedge against currency weakness,
and all dollar-priced commodities become cheaper for holders of
other currencies as the U.S. unit loses value.
The metal is likely to spend some time consolidating above
$950 an ounce after sliding 3 percent in the last two sessions,
but underlying interest in gold as a hedge against currency
weakness and prospective inflation remains firm, analysts
said.
A recent clearing out of weak speculative long positions in
the gold market on New York's COMEX exchange has given a
stronger base for gains, said Gerry Schubert, head of precious
metals at INTL Commodities.
"The most important point is that we have seen some long
liquidation that we needed to see," he said. "The whole picture
looks a lot healthier than it looked five, six days ago."
OIL-LED INFLATION?
U.S. crude futures <CLc1> settled up nearly $2, above $70
per barrel. Firmer crude prices often help gold, which can be
bought as a hedge against oil-led inflation. []
Strong equities markets also boosted investor risk
appetite, a positive for gold which is perceived as riskier
investment compared to government bonds.
Physical demand, however, remained relatively quiet, with
the market dominated by investment buying. In India, the
world's largest bullion market, high prices kept traders on the
sidelines as the wedding season approached its end.
Boosted by higher gold prices, silver <XAG=> outperformed,
rising to $15.22 an ounce from $14.91, having earlier jumped as
much as 2.9 percent.
In a rising market silver is attractive as a cheap
alternative to bullion, said Calyon analyst Robin Bhar.
"Also silver is more of an industrial metal in terms of
industrial applications, so it has got the twin impact of
weaker dollar, plus people buying it for recovery," Bhar
added.
Among other precious metals, platinum <XPT=> was at
$1,257.90 an ounce against $1,242, while palladium <XPD=> was
at $257.05 against $247.50.
ETF Securities said holdings of its ETFS Physical Platinum
exchange-traded fund <PHPT.L> rose nearly 16,000 ounces, or 5.1
percent, on Monday, suggesting firm investor interest in the
metal. []
Close Change Pct 2008 YTD
Chg Close Pct Chg
US gold <GCQ9> 954.70 2.20 0.2 884.30 8.0
US silver <SIN9> 15.140 0.185 1.2 11.295 34.0
US platinum <PLN9> 1257.90 13.90 1.1 941.50 33.6
US palladium <PAU9> 257.05 5.05 2.0 188.70 36.2
Prices at 2:50 p.m. EDT (1850 GMT)
Gold <XAU=> 954.75 4.70 0.5 878.200 8.7
Silver <XAG=> 15.22 0.31 2.1 11.30 34.7
Platinum <XPT=> 1245.50 3.50 0.3 924.50 34.7
Palladium <XPD=> 252.00 4.50 1.8 184.50 36.6
Gold Fix <XAUFIX=> 956.00 12.25 1.3 836.50 14.3
Silver Fix <XAGFIX=> 14.930 0.090 0.6 14.760 1.2
Platinum Fix <XPTFIX=> 1246.00 0.00 0.0 1529.00 -18.5
Palladium Fix <XPDFIX=> 251.00 0.00 0.0 365.00 -31.2
(Additional reporting by Jan Harvey and Kylie MacLellan;
Editing by Christian Wiessner)
