* Gold rises toward $940 as oil rises, dollar turns lower
* Gold options indicate futures volatility on decline
* China Communist Party think-tank says buy gold, sell dlr
(Recasts, updates with quotes, closing prices, adds NEW YORK
to dateline)
By Frank Tang and Nick Vinocur
NEW YORK/LONDON, June 25 (Reuters) - Gold futures rose
toward $940 an ounce on Thursday, as a weaker dollar and oil's
strong gains prompted investors to pour into the bullion
market.
However, the gold options market indicated that bullion
prices could continue to gyrate in a broad range as the market
was looking for trading cues from outside of the commodities
sectors.
Mihir Dange, a COMEX floor trader in New York, said that
option investors have been aggressively selling volatilities,
and that dampened option prices as gold futures failed to break
out of a broad range between $923 and $944 in the past ten
days.
The resurgent dollar and easing inflation worries have sent
gold prices reeling from a three-month high near $990 an ounce
in early June.
"When inflation is a concern - it must be at some point
when you are putting this much money into the economy,
definitely gold should get interesting again," Dange said.
U.S. August gold futures <GCQ9> settled up $5.10 at $939.50
an ounce on the COMEX division of the New York Mercantile
Exchange.
Spot gold <XAU=> was at 938.30 per ounce at 3:14 p.m. EDT
(1800 GMT), up from $931.10 quoted late in New York on
Wednesday.
The U.S. currency later lost ground against most major
currencies, tracking the change in U.S. stocks, which rose on
economic optimism.
Investors view gold as an insurance against the falling
value of their dollar-denominated portfolio. The inverse
relationship between gold and the dollar broke down early this
year as both assets benefited from a flight to safety.
The yellow metal has moved some way off Monday's low of
$912.90, garnering support above $930 per ounce. Rising crude
prices <CLc1>, which rose toward $71 a barrel, also boosted its
credentials as a potential hedge against oil-induced
inflation.
On Wednesday, gold cut gains after the U.S. Federal
Reserve's post-policy meeting statement showed that inflation
will remain subdued for some time. However, the Fed also said
it will keep rates low for the foreseeable future.
[]
Low U.S. interest rates are seen as potentially bearish for
the dollar from a yield perspective, raising the appeal of
dollar-denominated gold for non-U.S. investors.
CHINA THINK-TANK SAYS BUYS GOLD
Buying sentiment improved after the head of the economic
department of the Communist Party policy research office in
China said the country should buy more gold, and that
purchasing land in the United States was a better option for
China than buying U.S. treasuries. []
There is no suggestion that Li, even though he is a senior
researcher of the Party's think-tank, was enunciating an agreed
party line.
However, a debate is swirling in China about how the
country can reduce its exposure to the dollar and to U.S.
assets in case America's ultra-loose fiscal and monetary policy
rekindles inflation and erodes the value of the dollar and U.S.
Treasuries.
In other precious metals, spot silver <XAG=> firmed to
$13.99, against $13.83 quoted late in New York on Wednesday,
while platinum <XPT=> climbed to $1,184.50, against $1,156 and
palladium <XPD=> was stronger $243 from $233.50.
(Additional reporting by Risa Maeda in Tokyo, Zhou Xin and
Alan Wheatley in Beijing)
Close Change Pct 2008 YTD
Chg Close Pct Chg
US gold <GCQ9> 939.50 5.10 0.5 884.30 6.2
US silver <SIN9> 14.005 0.095 0.7 11.295 24.0
US platinum <PLN9> 1191.00 23.10 2.0 941.50 26.5
US palladium <PAU9> 244.45 7.00 2.9 188.70 29.5
Prices at 3:14 p.m. EDT (1914 GMT)
Gold <XAU=> 938.30 7.20 0.8 878.200 6.8
Silver <XAG=> 13.99 0.16 1.2 11.30 23.8
Platinum <XPT=> 1184.50 28.50 2.5 924.50 28.1
Palladium <XPD=> 243.00 9.50 4.1 184.50 31.7
Gold Fix <XAUFIX=> 937.25 3.75 0.4 836.50 12.0
Silver Fix <XAGFIX=> 13.870 -0.010 -0.1 14.760 -6.0
Platinum Fix <XPTFIX=> 1176.00 0.00 0.0 1529.00 -23.1
Palladium Fix <XPDFIX=> 236.00 0.00 0.0 365.00 -35.3
