(Adds comment, updates prices)
By Jan Harvey
LONDON, June 13 (Reuters) - Gold weakened a touch on Friday
as the dollar remained firm against the euro and oil prices
dropped by $3 a barrel.
Investors are now awaiting the outcome of this weekend's
meeting of G8 finance ministers.
Any further comment on inflation at the meet may fuel
expectations for a U.S. rate hike, which could strengthen the
dollar, pressuring gold. []
The precious metal tends to move in the opposite direction
to the dollar, as it is often bought as a hedge against weakness
in the U.S. currency.
Gold <XAU=> dipped to $864.30/864.95 an ounce at 1506 GMT,
from $867.55/869.55 late in New York on Thursday.
Gold prices have suffered as the dollar heads for its
strongest week in three years on the back of rising speculation
of a rate hike, shedding just over 4 percent since Monday.
"With the stronger U.S. dollar environment, gold has been
under a lot of pressure," said Dan Smith, an analyst at Standard
Chartered.
The precious metal weakened earlier this session after the
euro slipped to a one-month low against the dollar in the wake
of an Irish vote on EU reform. []
A dip in crude prices is also helping dampen interest in the
precious metals. Gold typically moves in line with crude as it
is bought as a hedge against oil-led inflation. []
INFLATION HEDGE
Nonetheless, with the dollar remaining broadly weak, the
outlook for interest rates uncertain, and inflation on the rise,
analysts remain broadly positive towards the outlook for gold.
While in the short term, an uptick in inflation may pressure
gold as it raises expectations rates will rise, in the longer
run gold's value as an inflation hedge is likely to encourage
fresh buying of the precious metal.
Smith at Standard Chartered points to a rise in holdings by
exchange traded funds (ETFs) - vehicles which trade securities
backed by physical metal - as evidence that fund demand is
strong.
Gold held by New York's StreetTRACKS Gold Shares, the
largest gold ETF, rose by 7.66 tonnes on Thursday to 605.21
tonnes, a seven-week high.
"Investors are obviously still interested in gold for
inflation hedging purposes and safe haven purposes," said Smith.
Analysts are also sceptical over whether the dollar's recent
uptick represents a sustained bounce.
"With US real interest rates in negative territory and the
deterioration in the US basic balance, we would view any
short-term strength in the US dollar and gold price weakness as
likely to be short-lived," said Deutsche Bank in a note.
Spot platinum <XPT=> rose to $2,028.00/2,043.00 an ounce
from $2,010.50/2,030.50 late in New York.
"With no significant fundamental news from South Africa, the
dollar should continue to dictate price movements," said analyst
Manqoba Madinane at Standard Bank in a note.
Silver <XAG=> was steady at $16.45/16.50 an ounce against
$16.44/16.54, while spot palladium <XPD=> rose to $448.50/456.50
an ounce against $433.50/441.50.
(Reporting by Jan Harvey; editing by Nigel Hunt)
