(Recasts with comment, prices, changes dateline, pvs SINGAPORE)
By Jan Harvey
LONDON, June 16 (Reuters) - Gold rose in Europe on Monday as
the dollar weakened against the euro and as oil prices steadied
after earlier losses, with traders expecting rising fears over
inflation to give the precious metal its next leg up.
Gold <XAU=> rose to $875.40/876.40 an ounce at 1020 GMT, up
from $869.00/870.00 an ounce late in New York on Friday.
The precious metal remains sensitive to any further strength
in the dollar after the U.S. currency posted its best week in
three years against a basket of currencies, pressuring gold to
its lowest level since May 2 on last Thursday.
However, with attention increasingly turning to inflation
and with oil prices holding above $130 a barrel, the outlook for
the precious metal remains positive, traders said.
"Gold is starting to find its own feet in an inflationary
environment, and over a longer period of time should outperform
most other commodities," said Simon Weeks, director of precious
metals trading at the Bank of Nova Scotia.
In the short term, the market continues to eye movements in
the foreign exchange markets, with any dollar weakness
encouraging buying of the precious metal as a currency hedge.
The dollar slipped this morning against the euro.
Record-high euro zone inflation data released Monday has
cemented expectations the European Central Bank will raise rates
on July 3. []
The U.S. currency had already softened a touch after Group
of Eight finance ministers meeting in Japan this weekend failed
to release a firm statement on the dollar, as investors had
hoped.
In addition to boosting the precious metal's role as a
currency hedge, a softer greenback also makes dollar-priced gold
cheaper for holders of other currencies.
INFLATION
Oil prices steadied after softening earlier Monday as Saudi
Arabia, the world's biggest oil producer with output of just
over 9 million barrels a day, said it was prepared to pump more
crude to help damp down soaring prices.
High and resilient oil prices are a major driver of
inflation, an issue increasingly in focus as officials on both
sides of the Atlantic have come forward to warn against the
dangers of rising prices.
With bullion seen as a key hedge against inflation, the
precious metal is likely to find good buying support as oil
prices remain firm, analysts said.
But with the market fluctuating last week in line with
movements in the dollar, it may be a while before significant
physical buying returns to the market, despite a significant dip
in prices from above $1,000 an ounce in mid-March.
Physical buyers "like stability, and that's one thing we
haven't got", said Weeks.
Meanwhile the Commitments of Traders report from the
Commodity Futures Trading Commission showed on Friday that the
net long noncommercial position in COMEX gold declined to
151,248 contracts in the last week, its lowest since September
2007, from 170,211 in the week of June 3.
"The current lack of bullish sentiment on the gold market
continues to be reflected in the CFTC data," said Lehman
Brothers analyst Michael Widmer in a note.
Among other precious metals, spot platinum <XPT=> was steady
at $2,023.00/2,043.00 an ounce from $2,023.50/2,043.50 late in
New York.
Silver <XAG=> tracked gold up to $16.57/16.63 an ounce from
$16.48/16.56 late in New York. Spot palladium <XPD=> was little
changed at $447.00/455.00 an ounce from $445.50/453.50.
(Reporting by Jan Harvey; editing by Christopher Johnson)
