* Dollar soft, but weak demand for gold limits gains
* Platinum, palladium hit multi-month highs on supply threat
(Updates throughout, changes dateline from TOKYO)
By Jan Harvey
LONDON, Aug 5 (Reuters) - Gold held near $965 an ounce in
Europe on Wednesday, supported by the softer dollar, but gains
were limited by weakness in underlying demand for the metal.
Platinum and palladium built on the last session's rise,
with the threat of supply disruption in major producer South
Africa taking the metals to multi-month highs.
Spot gold <XAU=> was bid at $965.30 an ounce at 0955 GMT,
against $966.75 an ounce late in New York on Tuesday. That
session it hit a high of $970.05, its strongest since June 5.
"The major forces that are affecting gold are the dollar on
the one hand and ETF flows on the other," said Deutsche Bank
commodities analyst Michael Lewis.
"There are definitely risks that the dollar could go even
weaker," he said. "The dollar could still be moving lower
throughout next year."
Weakness in the U.S. currency is encouraging more investors
to move into hard assets such as gold, as well as making
dollar-priced commodities cheaper for holders of other
currencies.
The dollar is holding near its lowest level this year and
analysts see a risk of further declines as the global economy
shows signs of improvement. []
Optimism over the outlook for the markets was supported by a
rise in European equities on Wednesday after a pause in their
upswing the day before, while oil remains near year-highs above
$70 a barrel, albeit a touch down on the day. [] []
"The U.S. dollar is at year lows to all major currencies
with the exception of the (yen) and the U.S. and many other
global equity markets are at the year highs," said HSBC analyst
James Steel in a note.
"Additionally, oil prices are close to year highs, as are
many other commodities," he said. "These factors are supportive
of the gold price."
DEMAND
But gold buying by ETFs, which issue securities backed by
physical stocks of a given metal, remains weak. The largest gold
ETF, New York's SPDR Gold Trust <GLD>, said its holdings were
unchanged for a fourth day on Tuesday. []
ETF Securities said the three gold-backed ETFs it operates
saw outflows of nearly 25,000 ounces on Tuesday.
In India, the world's biggest gold consumer last year,
bullion buying was hurt by rising prices. []
Gold's rise helped lift silver <XAG=> to $14.73, a seven
week high. It was later at $14.72 an ounce against $14.61.
Platinum and palladium also hit new multi-month highs. The
metals are taking support from news that unions are planning a
strike at South African power utility Eskom, having already been
lifted earlier in the week by positive July car sales data.
The National Union of Mineworkers, South Africa's biggest
union, said it plans to strike at Eskom [] next week
after rejecting a wage offer, raising the threat of power
disruptions. []
"We've seen a lot of speculative buying coming into the
market on the back of the Eskom news," said Commerzbank trader
Rory McVeigh
"The whole move in the price is speculative positioning.
We're still seeing very, very thin demand for the physical
metals," he added. "We'll probably see a push to get platinum up
to $1,300 today."
Spot platinum <XPT=> hit a high of $1,290 an ounce on
Wednesday, its firmest since June 6, and was later at $1,276 an
ounce against $1,265.50. Palladium <XPD=> rose to a new 11-month
high of $281, and was at $279 against $274.50.
(Additional reporting by Catherine Bosley; Editing by Sue
Thomas)
