* Dollar plumbs fresh 14-mth lows against the euro
* Oil prices slide below $80/barrel
* Physical offtake remains weak, caps gains
(Updates throughout, changes dateline from TOKYO)
By Jan Harvey
LONDON, Oct 26 (Reuters) - Gold prices rose back above
$1,055 an ounce in Europe on Monday as the dollar's slide to
14-month lows against the euro supported sentiment, but weaker
phyiscal demand and easing oil prices capped gains.
Spot gold was bid at $1,055.40 an ounce at 0918 GMT, against
$1,053.95 late in New York on Friday. U.S. gold futures for
December delivery <GCZ9> on the COMEX division of the New York
Mercantile Exchange eased 50 cents to $1,055.90 an ounce.
"That gold is climbing further is not surprising, given
weakness in the U.S. dollar," said Peter Fertig, a consultant at
Quantitative Commodity Research.
"But the increase is not strong, and that may relate to the
fact that crude oil is trading lower," he added. "There are two
conflicting forces at work here for gold."
The dollar slipped to 14-month lows versus the euro on
Monday after a Chinese report said Beijing should increase the
holdings of euros and yen in its foreign reserves. []
Weakness in the U.S. currency makes the precious metal
cheaper for holders of other currencies, as well as boosting
interest in gold as an alternative asset.
Oil prices declined, however, as fears over the strength of
the global economic recovery pressured demand expectations. Gold
often tracks bellwether commodity crude, as the metal can be
used as a hedge against oil-led inflation.
WEAK DEMAND
Physical demand for the metal remained soft. "Investors and
dollar doom-sayers may say gold could rise higher, but physical
markets are not at all in sync with that view," said Richcomm
Global Services senior analyst Pradeep Unni.
Wholesale gold traders in India, the world's biggest bullion
consumer last year, said they were picking up some bargains as
prices retreated from record highs, but demand is soft overall.
Investment buying was also less than buoyant. The largest
gold-backed exchange-traded fund, New York's SPDR Gold Trust
<GLD>, reported no fresh inflows on Friday. []
Speculative positions in U.S. gold futures eased from peaks,
with noncommercial net long positions falling 1.5 percent in the
week to Oct. 20 from a record 253,955 lots the week before, the
weekly Commitments of Traders report showed. []
"Investment demand was the driving force in gold's rise to
new record highs last week," said Fertig. "If investor demand is
not following through, there is nothing else left, as high
prices in Asia are keeping potential buyers on the sidelines."
Among other precious metals, spot silver <XAG=> was bid at
$17.68 an ounce against $17.65.
In a note, Bank of America Merrill Lynch said silver prices
had benefited from strong investment demand, and that a recovery
in economic activity was likely to be reflected in industrial
silver buying.
"After the recent sharp price rises, we are cautious on
silver in the near-term, but we believe that a spike towards $20
an ounce is possible in 2010," it said.
ETF Securities said holdings of its silver-backed
exchange-traded commodity <PHAG.L> rose 1 percent or just over
200,000 ounces to a record 21.054 million ounces on Friday.
It added that its palladium-backed ETC <PHPD.L> also saw
inflows of nearly 9,000 ounces 1.6 percent that day, bringing
its total holdings to a record 558,337 ounces.
Spot platinum <XPT=> was at $1,358.50 an ounce against
$1,358, while palladium <XPD=> was at $334 against $333.
(Reporting by Jan Harvey; Editing by Veronic Brown)
