* Record high in sight as dollar falls, oil nears $74
* Traders say jewellery demand improves after weak year
* Palladium firm after climb to 13-1/2-month highs
(Updates prices, adds comment)
By Jan Harvey
LONDON, Oct 12 (Reuters) - Gold prices sought higher ground
on Monday, keeping last week's record high in sight, as the
dollar turned lower and a surge in oil prices drew investors
looking for a hedge against potential inflation.
Spot gold <XAU=> rose to $1,057.25 an ounce at 1447 GMT, up
from $1,048.25 late in New York on Friday but off a record high
at $1,061.20 set last week.
The U.S. currency gave up its early gains against the euro
and other leading currencies as investos positioned themselves
ahead of U.S. corporate earnings later this week. []
Dollar weakness typically boosts gold, both because it makes
the metal cheaper for holders of other currencies, and as it
increases the appeal of the metal as an alternative asset.
"We're seeing a huge amount of investor interest, be it
paper interest through speculators on COMEX or ETF holdings.
Given that short term investor interest seems to be driving
prices, that is setting the tone," said Suki Cooper, analyst at
Barclays Capital.
"The currency movements are pivotal, so if we see the dollar
strengthening, I think you could see gold prices start to lose
their momentum," she added.
Jewellery buying -- which accounted for more than half of
total gold production last year -- has been weak in 2009 due to
high prices. But it is recovering as festival season gets
underway in key bullion consumer India, dealers say.
[]
Rising crude prices also boosted interest in gold as an
inflation hedge. Oil rose above $73 a barrel amid optimism over
the pace of the global economic recovery and after a positive
demand forecast from the International Energy Agency. []
"Some positive impetus is coming from the oil price, which
(is stabilising) above $70 a barrel," said Alexander Zumpfe, a
trader at precious metals house Heraeus.
ETF DEMAND MUTED
Demand for the precious metal from exchange-traded funds was
muted. The largest, New York's SPDR Gold Trust <GLD>, reported
no fresh inflows on Friday. []
But non-commercial net long positions in COMEX gold futures
rose to an all-time high of 239,668 lots in the week ended Oct.
9, up 3.6 percent from a week before, data from the U.S.
Commodity Futures Trading Commission showed. []
"As long as gold is on the rise and the most recent long
positions remain in profit, this does not represent a risk
factor just yet," said Commerzbank in a note.
"However, there is the risk that speculators will square
their long positions and, in this case, one should expect a
price correction. This will become a real risk only once the
gold price has fallen below the $1,000 per ounce threshold."
U.S. gold futures for December delivery <GCZ9> on the COMEX
division of the New York Mercantile Exchange rose $6.10 to
$1,054.70 an ounce.
Among other precious metals, silver firmed, supported by
gains in base metals. Silver is widely used in industry, chiefly
electronics manufacturing, as well as being an investment.
Spot silver <XAG=> was at $17.80 an ounce against $17.67.
Platinum <XPT=> was at $1,339 an ounce against $1,332, while
palladium <XPD=> was at $323.50 against $317.50.
Palladium climbed to its highest level since August 2008 on
Friday, supported by concerns over tightness in Russian supply,
traders said, and by strong technical support.
(Additonal reporting by Veronica Brown; Editing by Sue Thomas)
