* Inflation worries after CPI, dollar tumble boost gold
* Wall St rally, economic optimism smash deflation worries
* SPDR gold ETF sees outflow
(Recasts, updates with quotes, closing prices, adds NEW YORK
to dateline)
By Frank Tang and Nicholas Vinocur
NEW YORK/LONDON, July 15 (Reuters) - Gold rose to a
two-week high above $940 an ounce on Wednesday as the dollar
tumbled after data showed U.S. consumer prices rose faster than
expected in June.
Bullion was underpinned by a Wall Street rally amid
economic optimism. The metal, which is viewed as an inflation
hedge, has recently been weighed down by the prospect of
deflation, or a downward spiral in prices.
"Inflation concerns are starting set in, and that's why
gold is revaluated up $15," said Jonathan Jossen, an
independent COMEX floor gold options trader in New York.
U.S. August futures <GCQ9> settled up $16.60, or 1.8
percent, at $939.40 an ounce on the COMEX division of the New
York Mercantile Exchange.
The August contract soared to $942.30, its highest level
since July 1, after the monthly U.S. Consumer Price Index
showed consumer prices rose a slightly faster-than-expected 0.7
percent in June [].
On Tuesday, data showed that U.S. producer prices soared by
1.8 percent, twice as much as expected, in June for the
steepest gain since November 2007.
Spot gold <XAU=> traded at $939.95 an ounce at 2:51 p.m.
EDT (1851 GMT), against $924.60 in its previous session
finish.
The U.S. dollar index fell to a one-month low as
better-than-expected results from Intel and Goldman Sachs
boosted confidence about corporate earnings and the outlook for
the economy, prompting investors to buy higher-yield
currencies.
"The dollar has been the main driver this afternoon in
terms of flows into commodities," said Dan Smith, an analyst at
Standard Chartered. "That's been the main thing rather than the
actual inflation aspect, which remains quite far off.
"It's interesting to see that gold is now picking up on the
back of this improving sentiment," he added.
Healthier risk appetite also boosted crude prices and
equity markets, pushing global stocks to their highest level in
nearly two weeks and lifting oil <CLc1> by more than $2 to
settle above $61 a barrel.
Aurele Storno, a fund manager at Swiss group Lombard Odier,
told Reuters on Wednesday that gold could set a record by
December, and the metal's average price would probably be
higher in 2010 than this year. []
INVESTMENT DEMAND STALE
Demand for physical gold was lackluster, meanwhile.
The largest gold ETF, New York's SPDR Gold Trust, saw an
outflow of more than 15 tonnes or 1.4 percent on Tuesday, while
jewelry demand in the world's largest bullion consumer, India,
was sluggish as buyers awaited lower prices. []
But gold has managed to hold above $900 an ounce in recent
weeks despite weak physical demand, backing up market players
who see the price rising even further in coming months.
Gold hit a record high above $1,030 an ounce in March
2008.
Silver <XAG=> tracked gold higher, rising to a session peak
of $13.37 an ounce and reversing much of the slide that took
the metal to a 10-week low earlier this week. Silver was at
$13.25 an ounce against $12.88.
Among other precious metals, platinum <XPT=> was at $1,157
an ounce against $1,127.50, while palladium <XPD=> was at $246
against $241.
(Additional reporting by Jan Harvey in London)
Close Change Pct 2008 YTD
Chg Close Pct Chg
US gold <GCQ9> 939.40 16.60 1.8 884.30 6.2
US silver <SIN9> 13.203 0.348 2.7 11.295 16.9
US platinum <PLN9> 1151.30 22.90 2.0 941.50 22.3
US palladium <PAU9> 248.40 4.55 1.9 188.70 31.6
Prices at 3:50 p.m. EDT (1950 GMT)
Gold <XAU=> 938.85 14.25 1.5 878.200 6.9
Silver <XAG=> 13.25 0.37 2.9 11.30 17.3
Platinum <XPT=> 1156.00 28.50 2.5 924.50 25.0
Palladium <XPD=> 244.50 3.50 1.5 184.50 32.5
Gold Fix <XAUFIX=> 938.00 13.25 1.4 836.50 12.1
Silver Fix <XAGFIX=> 13.270 0.390 3.0 14.760 -10.1
Platinum Fix <XPTFIX=> 1158.00 0.00 0.0 1529.00 -24.3
Palladium Fix <XPDFIX=> 246.00 0.00 0.0 365.00 -32.6
