* Gold hits one-week high as investors return
* Soft dollar, higher oil prices boost gold
* Strong physical demand expected to boost prices further
(Updates prices)
By Pratima Desai
LONDON, Aug 21 (Reuters) - Gold prices hit a one-week high
on Thursday, fortified by investor buying as oil prices rose,
the dollar slipped, equities fell and on expectations of strong
physical demand over coming months.
Gold <XAU=> rose to $827.10 an ounce, the highest since
August 14, and was up at $824.50/825.70 an ounce at 1124 GMT from
$810.35/811.75 an ounce late in New York on Wednesday.
Analysts said many investors and traders, who had sold their
holdings in recent weeks as the dollar strengthened, were now
feeling their way back into the market.
Demand for gold in top consumer India fell sharply after
prices hit a record high of $1,030.80 in March. Analysts say
that is changing and as the country heads into the festival and
wedding season, demand will rise.
"There are signs that physical demand is rising sharply in
response to low prices," said Eugen Weinberg, commodities
analyst at Commerzbank.
"Indian jewellers, for example, are paying far bigger
premiums to gold importers in order to meet the rise in demand.
"Indian demand should rise rapidly over the next few months,
especially with the country's main religious holidays
approaching, which should provide an additional boost."
A weaker U.S. currency makes commodities priced in dollars
cheaper for holders of other currencies. Investors often use
gold as a hedge against financial turmoil and inflation, often
triggered by high oil prices.
RUSSIAN ANGER
The dollar <EUR=> fell as higher oil prices and growing
concerns about the stability of the financial sector in the
United States took the steam out of its recent rally. []
European equities fell to three-week lows on Thursday as oil
prices revived inflation concern, financial stocks slid and
worries about U.S. mortgage lenders Freddie Mac and Fannie Mae
mounted. []
Oil prices rose for the third consecutive day after a deal
between the United States and Poland to station parts of a U.S.
Missile defence shield on Polish soil angered Russia. []
"Oil prices at current levels could attract further
investment fund flows into precious metals," Standard Bank said
in a note, adding that technical signals indicate precious
metals are due for a correction.
Technical analysts expect gold to build a strong base above
the $800 an ounce level. They reckon the precious metal could
see $900 an ounce before the end of the year.
In platinum, palladium and silver, the thinking is also that
the recent sell-off has been overdone and that a bounce is due.
But over the longer term, analysts expect platinum's
fortunes to be tied to the health of the global car industry,
which in recent months has experienced sharply declining sales.
Spot platinum <XPT=> was firmer at $1,395/1,415 an ounce from
$1,368.50/1,388.50 an ounce late on Wednesday, palladium <XPD=>
at $286/294 from $281/289 and silver <XAG=> edged up to
$13.55/13.61 from $13.15/13.21.
(Additional reporting by Anna Stablum; editing by Peter
Blackburn)
