* Gold rises toward $950 on dollar weakness, oil rally
* World Gold Council says gold demand fell 9 pct in Q2
* Silver slips to 3-week low as base metals slide
(Recasts, updates with quotes, closing prices, adds NEW YORK
to dateline)
By Frank Tang and Jan Harvey
NEW YORK/LONDON, Aug 19 (Reuters) - Gold futures rose
toward $950 an ounce Wednesday on the back of an oil rally and
weaker dollar, even as a closely watched industry report showed
that gold jewelry demand fell hard amid a global recession.
Doubts about a nascent global economic recovery recently
prompted investors to sell riskier assets such as stocks and
commodities and to pile into a safe haven including the U.S.
dollar and Treasury bonds.
"The big problem is that we are still waiting for some
confirmations that economic recovery is going to come. Gold is
more of an economic play right now," said Zachary Oxman,
managing director of California-based TrendMax Futures. "I
expect the market to bounce on any good economic reports."
Oxman said that gold's strength on Wednesday was due to
gains on Wall Street and the dollar weakness.
U.S. December gold futures <GCZ9> settled up $5.60 at
$944.80 an ounce on the COMEX division of the New York
Mercantile Exchange.
Spot gold <XAU=> was at $943.50 an ounce at 1:55 p.m. EDT
(1755 GMT), against $937.30 an ounce late in New York on
Tuesday.
The dollar hit one-month low against the yen and also fell
versus the euro, after a sharp drop in China's equities market
increased the Japanese currency's safe-haven appeal. []
"For the rest of the month gold will be trading on
sentiment (and on) the dollar," said VTB Capital analyst Andrey
Kryuchenkov.
"I expect prices to recover well when we have full blown
inflation, as (gold is) an inflation hedge... but right now we
are still far off. We are still pretty much in deflation,"
Kryuchenkov said.
Crude futures rose more than $3 to above $72 per barrel
after weekly U.S. government data showed a steep drop in crude
imports and inventories. []
Gold often benefits from strength in oil as a precursor to
inflation.
The World Gold Council, an industry-sponsored trade group,
said gold demand fell 9 percent in the second quarter on
persistent weakness in jewelry buying, as the recession
dampened consumer sentiment and high prices put off buyers.
[]
But prices holding firm above $900 an ounce suggested areas
of demand not identified in the report -- from investors in the
COMEX futures market, for example -- firmly underpinned the
market, analysts said.
"The strong correlation between the gold price and the U.S.
dollar is pointing to these investors making up most of
unidentifiable demand," said Commerzbank analyst Eugen
Weinberg.
Earlier this year, the traditional link broke down because
both assets benefited from a flight to safety amid economic
fears.
SILVER SLIDES
Fears over the economic outlook weighed on the more
industrial precious metals -- platinum, palladium and silver --
as well as the base metals market, where copper and aluminum
both traded lower. []
Silver, which is widely used in electronics manufacturing,
slid more than 2 percent to a near three-week low of $13.48 an
ounce as base metals fell, pressured by losses in Asia. It
later recovered and was last at $13.87 an ounce against $13.96
as gold firmed.
Silver's correlation with copper reached 0.98 this week --
with a correlation of 1 meaning prices have moved up precisely
together. Its correlation with gold is at 0.93, according to
Reuters data.
Platinum <XPT=> was at $1,237.50 an ounce against $1,228,
while palladium <XPD=> was at $269.50 against its previous
finish of $271.
Close Change Pct 2008 YTD
Chg Close Pct Chg
US gold <GCZ9> 944.80 5.60 0.6 884.30 6.8
US silver <SIU9> 13.875 -0.085 -0.6 11.295 22.8
US platinum <PLV9> 1241.40 9.30 0.8 941.50 31.9
US palladium <PAU9> 271.80 -0.55 -0.2 188.70 44.0
Prices at 1:55 p.m. EDT (1755 GMT)
Gold <XAU=> 943.60 6.30 0.7 878.200 7.4
Silver <XAG=> 13.87 -0.09 -0.6 11.30 22.7
Platinum <XPT=> 1237.50 9.50 0.8 924.50 33.9
Palladium <XPD=> 269.50 -1.50 -0.6 184.50 46.1
Gold Fix <XAUFIX=> 943.00 8.00 0.9 836.50 12.7
Silver Fix <XAGFIX=> 13.585 -0.505 -3.6 14.760 -8.0
Platinum Fix <XPTFIX=> 1221.00 0.00 0.0 1529.00 -20.1
Palladium Fix <XPDFIX=> 268.00 0.00 0.0 365.00 -26.6
(Reporting by Frank Tang and Jan Harvey; Editing by Lisa
Shumaker)
