* Higher dollar, easing inflation to cap gold's gains
* Physical demand for gold to help support
* Brighter longer term outlook for gold
(Updates prices)
By Pratima Desai
LONDON, Nov 17 (Reuters) - Physical demand helped support
gold on Monday, but analysts say a higher dollar, lower oil
prices and receding inflationary worries will cap prices in the
short term.
However, analysts said that over the longer term, a
substantial depreciation of the dollar will help boost the
precious metal. A weaker U.S. currency makes gold priced in
dollars cheaper for holders of other currencies.
Spot gold <XAU=> was firmer at $741.20/743.20 an ounce at
1209 GMT compared with $741.05 an ounce late in New York on
Friday, on stronger demand from jewellery makers.
The dollar slipped on Monday, but it is higher than in July
when it hit record lows against the euro under $1.60. []
"We are quite bullish for gold the long term, primarily
because we see the dollar weakening substantially on all this
liquidity being pumped into the system," said Dan Smith, analyst
at Standard Chartered.
To ease the credit crunch and financial crisis, central
banks around the world have slashed interest rates and made
available large amounts of cash to the banking sector.
The realisation that financial problems would not be
confined to the United States has helped bolster the dollar.
But expectations of an acceleration of government debt
issuance in the United States is likely to hit dollar sentiment
over the coming year, analysts said. []
"Given ... the unprecedented demand for physical,
particularly gold coins and bars, and the possibility that the
dollar strength is unsustainable longer term, we believe that
precious metals could outperform," UBS said in a note.
STRUGGLE
Gold has struggled to maintain an uptrend since hitting a
two-month high of $931 an ounce in early October. It is down
nearly 30 percent since hitting a peak at $1,030.80 in March.
Reasons for gold's tumble since March include an easing of
fears about runaway inflation, partly due to falling commodity
prices, including oil, which is now trading around $56 a barrel
from record highs above $147 an ounce in July. [] []
Also behind gold's fall has been investors' need for
liquidity and cash to cover losses on stock markets.
Gold is often used as a hedge against inflation and
financial market uncertainty, which was not allayed by a meeting
of the Group of 20 countries over the weekend.
Governments from Washington to Beijing agreed to a raft of
fiscal and monetary steps to rescue the global economy but it
was left to individual countries to tailor their responses to
their particular circumstances and industries. []
A major industry in trouble is the auto sector, which has
reported a rapidly deteriorating outlook and undermined
confidence in the platinum market. []
Prices of platinum, used to make autocatalysts, have
collapsed by more than 60 percent since a record high of $2,290
an ounce in March.
The platinum market is looking ahead to a report on the
platinum and palladium markets from the world's top platinum
refiner, Johnson Matthey, <JMAT.L> due on Tuesday.
Platinum <XPT=> was at $821/841 an ounce from $833.50 late
in New York on Friday, palladium <XPD=> at $212/220 from $213
and silver <XAG=> at $9.42/9.50 from $9.48.
(Editing by Peter Blackburn)
