* Gold turns higher on dollar drop, oil gains
* New investment funds spur buying in precious metals
* U.S. May inflation data lower than expected
(Recasts, updates with quotes, closing prices, adds NEW YORK to
dateline)
By Frank Tang and Jan Harvey
NEW YORK/LONDON, June 17 (Reuters) - Gold futures reversed
initial losses to end higher on Wednesday as investors took heart on
a dollar drop and higher crude oil prices, and as new precious
metals investment funds spurred fresh buying.
Gold largely tracked movements in crude oil and the dollar,
which has turned weaker after tamed U.S. inflation data quashed
speculation the Federal Reserve would raise interest rates any time
soon.
The dollar's recent strength has dampened gold's appeal as a
hedge against the U.S. currency, sending bullion prices falling from
a three-month high at above $990 an ounce reached earlier in June.
Andrew Montano, a director at bullion dealer ScotiaMocatta, said
that physical demand has sustained at a reasonable level, even when
the market was moving into the traditional slower summer doldrums
period.
"There continues to be new investment vehicles introduced to the
ones that we already have, and that buying seems to be sufficient to
hold us where we are now," Montano said.
Canada's Brompton Funds Management Ltd said it will launch a new
combined gold, silver and platinum fund. Precious metals funds,
including the popular exchange-traded funds, provide a boost to
investment demand and have fueled the metals' price rally in recent
years. []
U.S. August futures <GCQ9> settled up $3.80 at $936 an ounce on
the COMEX division of the New York Mercantile Exchange.
Spot gold <XAU=> was at 937.00 an ounce at 3:18 p.m. (1918 GMT),
against $934.10 an ounce late in New York on Tuesday.
Fairfax analyst Marc Elliott said while rising risk aversion was
turning investors away from equities towards safer assets such as
gold.
The U.S. government's consumer price index, its broadest
inflation gauge, rose 0.1 percent last month, against expectations
for a 0.3 percent increase. []
The soft U.S. CPI reading may suggest that traders who bought
gold as a hedge against the prospect of future inflation may have
got ahead of themselves. Bullion is often bought as a hedge against
rising prices.
Earlier in the session, oil fell more than a dollar after a U.S.
government report showed a surprise increase in gasoline supplies in
the world's top consumer, limiting gains in the precious metal. Oil,
however, rebounded to end higher amid a drop in crude oil supplies.
[]
Gold often tracks oil, a key inflation indicator. []
Among other precious metals, silver <XAG=> was at $14.32 an
ounce against $14.17.
Platinum <XPT=> was at $1,203 an ounce against $1,215, while
palladium <XPD=> was at 241.50, against its previous finish of
$240.
Close Change Pct 2008 YTD
Chg Close Pct Chg
US gold <GCQ9> 936.00 3.80 0.4 884.30 5.8
US silver <SIN9> 14.280 0.150 1.1 11.295 26.4
US platinum <PLN9> 1205.20 -15.70 -1.3 941.50 28.0
US palladium <PAU9> 243.05 0.25 0.1 188.70 28.8
Prices at 3:18 p.m. EDT (1918 GMT)
Gold <XAU=> 937.00 2.90 0.3 878.200 6.7
Silver <XAG=> 14.32 0.15 1.1 11.30 26.7
Platinum <XPT=> 1203.00 -12.00 -1.0 924.50 30.1
Palladium <XPD=> 241.50 1.50 0.6 184.50 30.9
Gold Fix <XAUFIX=> 930.50 -3.50 -0.4 836.50 11.2
Silver Fix <XAGFIX=> 14.020 -0.280 -2.0 14.760 -5.0
Platinum Fix <XPTFIX=> 1201.00 0.00 0.0 1529.00 -21.5
Palladium Fix <XPDFIX=> 239.00 0.00 0.0 365.00 -34.5
(Additional reporting by Kylie MacLellan in London; Editing by
Marguerita Choy)
