* Rising oil prices lift gold but firmer dollar caps gains
* Investors eye Fed decision on interest rates due Wednesday
* Australia says gold mine output down
(Recasts with prices, comment, changes dateline, pvs SINGAPORE)
By Jan Harvey
LONDON, June 23 (Reuters) - Gold climbed in Europe on Monday
as rising oil prices fuelled buying of bullion as an inflation
hedge.
Gains were capped, however, by a firmer dollar in the wake
of soft European economic data.
Gold <XAU=> rose to $903.65/904.65 an ounce at 0957 GMT,
from $901.35/902.75 late in New York on Friday.
Oil tracked higher over the weekend as traders speculated a
promised output hike from Saudi Arabia would fail to outweigh
falling production from Nigeria, and amid geopolitical tensions.
[]
"We expect high oil prices will bring higher investment into
gold," said Commerzbank analyst Eugen Weinberg.
"The inflationary pressures we are seeing around the world
will keep pushing investors into gold, because gold is seen as a
safe haven against inflation."
Gold's resilience after pushing above $900 an ounce last
Thursday is also positive from a technical point of view, he
added.
On the fundamental front, news that Australian gold
production has fallen by a greater-than-expected 7 percent in
the last year is also encouraging buying, analysts said.
Australia is the world's third-largest producer of gold
behind China and South Africa. Its output is estimated at 231
tonnes in the year to June 30, against 249 tonnes the year
before.
"This kind of news will also bring interest back to gold,"
said Weinberg at Commerzbank.
John Meyer, an analyst at Fairfax IS, said gold production
was becoming less cost-effective for miners, who can produce
other metals with lower overheads.
"Margins for gold producers are below that for other types
of mines effectively diverting capital into other metals," he
said in a research note.
However, gains in the gold price were capped by a rally in
the dollar, which ticked up against the euro after weak European
economic data. []
The euro zone services PMI fell to 49.5 in June while the
manufacturing PMI stood at 49.1 -- both below the 50 reading
which signals economic expansion.
The German Ifo business climate index also fell more than
expected in June, to 101.3, its lowest level since December
2005.
Short-covering ahead of this week's Federal Reserve decision
on interest rates also benefited the dollar, analysts said.
A softer dollar typically benefits gold, as it is bought as
a hedge against weakness in the U.S. currency. A weaker
greenback also makes dollar-priced gold cheaper for holders of
other currencies.
The Fed's Open Market Committee is holding a two-day meeting
to set rates from Tuesday.
The FOMC is widely expected to leave rates on hold at 2
percent, but is seen sharpening its rhetoric on inflation in its
accompanying statement.
Its decision, and its post-decision statement, are expected
to have a significant impact on the dollar, and therefore on
gold. Any suggestion that a rate hike may be forthcoming later
this year could help the currency.
Among other precious metals, spot platinum <XPT=> rose to
$2,060.00/2,070.00 an ounce from $2,048.50/2,068.50 late in New
York.
Palladium <XPD=> edged up to $472.00/477.00 an ounce from
$469.50/477.50 an ounce, while silver <XAG=> was little changed
at $17.38/17.43 an ounce from $17.36/17.43 late in New York.
(Reporting by Jan Harvey; editing by Christopher Johnson)
