* End-of-quarter buying lends support at higher levels
* Stronger crude price bolsters inflation-hedge appeal
* Recovery plays into base metals could cap upside
By Nick Vinocur
London, June 26 (Reuters) - Gold hit a two-week high above
$945.00 per ounce on Friday, lengthening its gains as the dollar
retreated broadly, while rising oil prices raised its appeal as
a potential inflation hedge.
Spot gold <XAU=> touched a high of $945.80 early in London
-- last seen in mid-June -- up from $938.55 quoted late on
Thursday in New York. The metal stood at $942.95 by 0931 GMT.
Global stocks rallied while the dollar fell against a basket
of currencies <.DXY>, bolstered by a return to risk-seeking
behaviour after remarks by the U.S. Federal Reserve convinced
investors that borrowing costs would stay near zero and the
debt-buyback programme would continue apace. []
Despite the brighter approach to risk, the weaker U.S. unit
made dollar-denominated gold cheaper for holders of foreign
currencies.
The precious metal, viewed as a potential hedge against
inflation, also got a boost from stronger oil prices as supply
concerns pushed crude <CLc1> above $71 a barrel. []
Analysts said that gold was rallying on the weaker dollar
and end-of-quarter deals, despite weak fundamental demand and
looming sales by the International Monetary Fund.
"From a fundamental perspective at least, $945 is a very
good position for gold to be entering the second half of the
year," said Nick Moore, head of commodity strategy at RBS Global
Banking and Markets.
"The most important feature to focus on is the likelihood
that we'll see confirmation that the IMF will sell some of its
400 tonnes of gold ... the prospect of 400 tonnes of gold being
sold by the IMF in September is a bit of a dampener."
BASE METALS RALLY
A rally in base metal prices also raised the possibility
that investors could be compelled to switch out of their
holdings in gold to take advantage of higher demand for raw
materials in anticipation of economic recovery, analysts said.
"I'm concerned there will be more appetite for other things,
and gold could get neglected if people want equities, energy and
industrial metals," said Robin Bhar, an analyst at Calyon.
"Next week is a new quarter, which could be associated with
fresh investment flows into plays on the recovery," he added.
Copper <MCU3> prices have risen 66 percent on the year,
while aluminium <MAL3> used in transport and packaging is on
track for its biggest monthly gain since May 1988. []
Analysts also said investors had taken support from the U.S.
Federal Reserve's post-policy meeting statement that offered no
hint of changes to its programme of quantitative easing.
[]
Inflows into gold-backed exchange-traded funds waned,
reflecting weak fundamental demand for gold from retail
investors and the jewelry market.
Holdings at the world's largest gold-backed exchange-traded
fund, SPDR Gold Trust <GLD>, fell 0.5 percent to 1,125.74 tonnes
as of June 25, down 5.5 tonnes from the previous business day.
[]
U.S. gold futures for August delivery <GCQ9> strengthened to
$945.2 an ounce, rising half a percent on the day.
In other precious metals, spot silver <XAG=> firmed to
$14.25, against $14.01 quoted late in New York on Wednesday,
while platinum <XPT=> climbed to $1,199.00, against $1,186.00
and palladium <XPD=> strengthened to $243.50 from $242.00.
(Additional reporting by Chikako Mogi in Tokyo; editing by
James Jukwey)
