(Recasts, adds quotes, updates prices)
By Atul Prakash
LONDON, May 7 (Reuters) - Gold fell more than 1 percent on
Wednesday as speculators booked profits and turned their
attention to other asset classes, but strong oil prices limited
declines, analysts said.
Spot bullion <XAU=> traded up to $881.05 an ounce earlier in
the day, but slipped to $867.35/868.05 by 1513 GMT, against
$877.40/878.60 late in New York on Tuesday and a record high of
$1,030.80 on March 17.
"Profit-taking is driving things ... but the market is
holding because of oil which has been hitting a new record every
day," said Adrien Biondi, global head of precious metals at
Commerzbank.
"I think if oil wouldn't be as high, gold would be lower,"
he said.
A rise in the dollar against the euro following weaker
-than-expected retail sales for the euro area weighed on
sentiment while expectations U.S. rate cuts may soon cease
lowered the metal's appeal as an alternative investment.
A firmer dollar makes gold costlier for holders of other
currencies and often lowers bullion demand. The metal is also
generally seen as a hedge against oil-led inflation.
Oil held steady, within sight of a record high above $122 a
barrel hit the previous day.
U.S. crude <CLc1> was up 6 cents at $121.90 a barrel.
All eyes were trained on the European Central Bank, which at
a meeting on Thursday is expected to hold interest rates steady
at 4 percent.
"Tomorrow's ECB rate-setting meeting might reverse the
euro/dollar move, but another test of downside support around
$850 now appears more likely for gold in the short-term rather
than a push to $900," said Tom Kendall, metals strategist at
Mitsubishi Corporation.
"The recent disconnect between the price of gold and oil
means that weakness in the price of crude is not a prerequisite
for a sell-off in bullion."
OTHER MARKETS
Some analysts said gold would look at other markets for
short-term direction.
"Should oil stabilise or slip back, then we would expect
gold prices to ease in the coming weeks. However, any weakening
of the dollar or severe escalation in oil prices would quickly
result in high gold prices," investment bank Fairfax said in a
report.
Analysts said a rise in gold holdings in the world's top
exchange traded fund for bullion, StreetTRACKS Gold Shares
<XAUEXT-NYS-TT>, suggested physical investors were putting their
money back into gold after it fell to a four-month low of $845
last week.
Gold held in StreetTRACKS rose to 584.44 tonnes from 580.45
tonnes last week but this was still down from a record of 663.83
tonnes in mid-March.
Still, other analysts said some investors pulled out of gold
on Wednesday to allocate more funds to asset classes such as
equities.
"Specs are thinking new markets and some liquidation of
positions...people are taking some cash out to put it
elsewhere," said Biondi from Commerzbank of the intraday price
move.
In other markets, gold futures for June delivery <GCM8> on
the COMEX division of the New York Mercantile Exchange fell $9.3
an ounce to $868.30 an ounce.
Spot platinum <XPT=> steadied at $1,950.00/$1,970.00 an
ounce from $1,947.50/1,967.50 late on Tuesday, while silver
<XAG=> fell to $16.57/16.63 an ounce from $16.84/16.91.
Palladium <XPD=> fell to $417.00/425.00 an ounce from
$427.50/435.50.
(Additional reporting by Tamora Vidaillet)
(Editing by Daniel Magnowski)
