(Updated prices, recasts, adds fresh comment)
By Jan Harvey
LONDON, June 5 (Reuters) - Gold came off lows on Thursday as
the dollar slipped from a three-week high against the euro after
comments by European Central Bank President Jean-Claude Trichet
on a possible euro zone interest rate rise.
But gains remain capped by uncertainty over the future
direction of the U.S. currency and by expectations demand will
remain muted going into the typically slack third quarter.
Spot gold <XAU=> was trading at $873.60/874.60 at 1430 GMT,
against $878.30/879.70 an ounce late in New York on Wednesday.
"Gold has come back off lows, but there is still a lot of
caution," said Mitsubishi metals strategist Tom Kendall. "The
market is very sluggish in terms of end-user demand. There is
not a lot of support from jewellery buyers."
Price volatility this year has made jewellers wary of buying
gold, he said.
The precious metal slipped 1.4 percent to an intraday low of
$865.45 earlier, its weakest level in three weeks, as the
stronger dollar dampened interest in the precious metal as a
currency hedge.
The euro touched a three-week low against the dollar,
pressuring gold, while the U.S. currency also reached its
firmest level in three months against the yen.
Gold typically benefits from a softer dollar, as it is
bought as a hedge against currency weakness.
The dollar had benefited this week from remarks made by
Federal Reserve Chairman Ben Bernanke on the worrying outlook
for inflation.
His comments were widely taken to signal an end to the Fed's
rate-cutting trend and led some analysts to speculate the dollar
may have reached a turning point after months of decline.
"We consider (Bernanke's) comments supportive of our view
that the dollar is basing - especially against European
currencies - and that this is supportive of our view that gold
peaks this year," said UBS analyst John Reade.
"We continue to forecast that gold averages $750/oz in 2009
and $720/oz in 2010," he added.
A fall in the price of oil from the all-time highs it
reached last month is also undermining support from gold. The
precious metal benefits from rising crude prices, as it is often
bought as a hedge against oil-led inflation.
The market is now eyeing U.S. non-farm payrolls data due out
tomorrow, which are likely to lend fresh direction to the
currency, for clues as to the future direction of trade,
analysts said.
Among other precious metals, platinum <XPT=> dipped to
$1,974/1,994 against $1,985/2,005 late in New York on Wednesday.
Palladium <XPD=> slipped to $422.50/427.50 from
$425.00/433.00, and silver <XAG=> rose to $17.06/17.11 from
$16.81/16.87 an ounce.
(Reporting by Jan Harvey; Editing by David Evans)
