(Adds New York gold prices, analyst comment)
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.
By 4:01 p.m. EDT (2001 GMT), gold <XAU=> added to gains to
trade $881.10/882.50 an ounce from $866.60/868.00 late in New
York on Tuesday.
In New York, the August gold contract <GCQ8> on COMEX
division of New York Mercantile Exchange rose $11.7, or 1.34
percent, to $882.9 an ounce.
"You don't have to look much further than the fact that the
dollar weakened and the oil rally. The market still has an
overall sloppy performance to it. We saw some short covering
from speculators in relationship to the dollar and with the oil
price surge," said Bill O'Neill, partner at LOGIC advisors.
Declines in the dollar make dollar-denominated assets like
gold more attractive to investors in overseas markets.
"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 in the
United States. []
Strength in the U.S. currency was the main factor sending
gold prices to a low of $864.15 an ounce Tuesday, as the firmer
dollar discouraged buying of the precious metal as an
alternative investment.
Crude oil prices jumped more than $5 to settle at $136.38 a
barrel, within sight of the all-time record near $140 as U.S.
stockpile data fell sharply for the fourth week in a row, adding
to concerns about tight global supplies.
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=> climbed to $2,032.50/2,052.50 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.
(Additional reporting by Carole Vaporean in New York)
