(Recasts, adds comment, updates prices)
By Jan Harvey
LONDON, June 11 (Reuters) - Gold rose more than 1 percent on
Wednesday as the dollar softened against the euro and as firmer
oil prices spurred buying of bullion as an inflation hedge.
Gold <XAU=> rose to $877.90/878.90 an ounce by 1356 GMT from
$866.60/868.00 late in New York on Tuesday.
"The dollar has weakened again and oil has also ticked up,
so both are pushing in the right direction," said David
Thurtell, an analyst at BNP Paribas.
The dollar wilted against the euro and the yen on Wednesday
as the market debated the outlook for interest rates and the
United States. []
Strength in the U.S. currency was the main factor sending
gold prices to a low of $864.15 an ounce yesterday, as the
firmer dollar discouraged buying of the precious metal as an
alternative investment.
Oil prices also rose on Wednesday after two sessions of
decline as the market awaited key inventory data from the U.S.
Dept of Energy, which is expected to show another drop in crude
stocks. []
Gold typically trades in line with crude prices, as it is
often bought to counteract rising inflation.
CONCERNS
Traders remained concerned, however, that the dollar's
recovery from the series of record lows it hit against the euro
earlier this year may be the start of a longer term correction
in the currency.
The weaker dollar has been the driving force behind rising
gold prices this year. Any reversal of that trend could lead to
a fall in gold prices, despite the support potentially lent to
the precious metal by burgeoning inflation fears.
Fed Chairman Ben Bernanke has drawn inflation back into the
spotlight in a series of comments in recent days, raising
expectations the Fed may move to raise interest rates later this
year to dampen rising prices.
"Historically there has been a strong inverse correlation
between interest rates in the US and the gold price," said
Michael Jansen, an analyst at JP Morgan, saying a sharp move
higher in U.S. interest rates was likely to knock gold lower.
Analysts said gold may also take support from news that
members of South Africa's National Union of Mineworkers (NUM)
would join a national strike called next month by the COSATU
labour union. []
COSATU has called a strike for July 30 to protest against
job losses linked to the country's electricity shortage. The
NUM, which boasts 320,000 members, has said it will support the
move.
South Africa was the source of around 11 percent of global
gold production last year and supplies four out of every five
ounces of the world's platinum.
Spot platinum <XPT=> has climbed to $2,018.50/2,038.50 an
ounce against $1,991.50/2,011.50 late in New York on Tuesday.
The metal is particularly sensitive to supply problems from
South Africa. The republic's ongoing power shortage has already
sent the white metal to new record highs this year.
"Markets fear growing shortages in the coming months during
the South African winter," said analyst John Meyer at Fairfax
investment bank.
Among other precious metals, spot silver <XAG=> rose to
$16.86/16.92 against $16.58/16.64 late in New York on Tuesday,
while palladium <XPD=> was trading at $426.00/431.00 against
$421.00/429.00.
(Reporting by Jan Harvey; editing by Christopher Johnson)
