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By Frank Tang and Atul Prakash
NEW YORK/LONDON, May 7 (Reuters) - Gold ended lower on
Wednesday as a sharp rise in the dollar prompted investors to
take profits, but strong oil prices limited declines.
Spot bullion <XAU=> traded as high as $881.05 an ounce
earlier in the day, but was at $870.85/872.05 by New York's
last quote at 2:15 p.m. EDT (1815 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.
U.S. gold futures for June delivery <GCM8> on the COMEX
division of New York Mercantile Exchange settled down $6.50 at
$871.20 an ounce.
Jonathan Jossen, a COMEX floor trader in New York, said
that the dollar's rally was a main factor dragging gold lower.
"The next support level (for the June contract) will be
between $851 and $853, but I don't think it's going to happen
though. You have to see the dollar up sharply to get there, I
think," said Jossen.
On Wednesday, the dollar gained broadly on the back of
hawkish comments from a Federal Reserve official and weak
retail sales data in the euro area, weighing heavily on gold.
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A firmer dollar makes gold costlier for holders of other
currencies and often lowers bullion demand.
Oil prices rose nearly $2 to over $123 a barrel, extending
further into record territory on supply worries, boosting
gold's appeal as a hedge against inflation. U.S. crude <CLc1>
ended up $1.69 at $123.53 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 Corp.
"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.
Spot platinum <XPT=> eased to $1,949.50/$1,969.50 an ounce
from $1,947.50/1,967.50 late in New York on Tuesday, while
silver <XAG=> fell to $16.61/16.66 an ounce from $16.84/16.91.
Palladium <XPD=> fell to $419.50/427.50 an ounce from its
previous U.S. finish of $427.50/435.50.
(Additional reporting by Tamora Vidaillet in London; Editing
by Christian Wiessner)
