By Atul Prakash
LONDON, March 12 (Reuters) - Gold gained nearly 1 percent on
Wednesday as a struggling dollar and firm oil prices prompted
investors and speculators to build fresh trading positions.
The metal <XAU=> rose to $980.30/981.00 an ounce by 1408 GMT
from $971.00/971.80 late in New York on Tuesday, when it fell to
a low of $964.35 on a dollar rally after global central banks
announced plans to boost liquidity in financial markets.
"Clearly the dollar has been the primary driver," said
Daniel Hynes, metals strategist at Merrill Lynch. "The outlook
is still very positive, although we are going to continue to see
little bouts of weaknesses as people take profits."
"But we are still expecting the U.S. dollar to come under
increasing downward pressure and believe the $1,000-an-ounce
mark will be reached pretty soon," he added.
The dollar fell broadly and neared a record low against the
euro as strong euro zone economic data renewed focus on the
divergent paths of European and U.S. interest rates.
The dollar had rallied sharply the previous session after
the Federal Reserve said it would lend primary dealers $200
billion in Treasury securities and accept a wider array of
mortgage debt as collateral to help ease tight credit markets.
A weaker dollar makes gold cheaper for holders of other
currencies and often lifts bullion demand. The metal is also
generally seen as a hedge against oil-led inflation.
Oil traded just below record highs near $110 overnight.
"There is a lot of investor interest in gold right now and
investor sentiment is the key driver for gold prices, but
physical demand holds them down," said Dan Smith, metals analyst
at Standard Chartered Bank.
"We expect a broad sideways move in gold prices in the
coming months, though long term we are still quite bullish."
Gold is still up nearly 17 percent since the start of the
year, a rally that has dimmed physical buying in key consuming
centres, although this week's consolidation around $970 has
stirred demand from jewellers in some parts of the world.
POSITIVE FACTORS
"The factors that have led to the recent gold price rally
remain in place. Global inflation risks are high as WTI crude
oil prices have consolidated above $105 a barrel. This should
provide support to precious metals," Standard Bank said.
Gold has fallen more than 2 percent since it spiked to a
lifetime high of $991.90 on March 6, but dealers said record
high oil prices and expectations of further interest rate cuts
in the United States were keeping further losses at bay.
"Gold is likely to find strong dip buying interest, however
the metal's failure to rally above $985 suggests the metal is
still top heavy and in need of further consolidation," James
Moore, analyst at TheBullionDesk.com, said in a market note.
In other metals, platinum <XPT=> fell as low as $2,003 an
ounce before rising to $2,045/2,055, against $2,050/2,060 late
in New York and a record high of $2,290 hit on March 4.
The metal has risen as much as 50 percent in 2008.
"Platinum prices look set to remain at high levels in the
absence of significant new platinum production from South Africa
or elsewhere," Fairfax investment bank said in a daily report.
Silver <XAG=> rose to $20.02/20.07 from $19.61/19.66 an
ounce in New York, while palladium <XPD=> was up at $490/495 an
ounce, versus $486/491 in the U.S. market.
(Additional reporting by Anna Ringstrom in London)
(Editing by Chris Johnson)
