(recasts, adds quotes, changes prices, pvs SINGAPORE)
By Atul Prakash
LONDON, March 31 (Reuters) - Gold rose on Monday as bargain
hunters took advantage of a price drop, but gains were likely to
be capped by weaker oil prices that reduced the metal's appeal
as a hedge against inflation.
Spot metal <XAU=> climbed to a high of $938.60 an ounce and
was quoted at $936.40/937.20 at 1003 GMT, against $931.80/932.60
late in New York on Friday, when it dropped more than 2 percent
on falling crude oil prices.
"Concerns about a slowing U.S. economy and the financial
stability of major institutions continue to affect broader
investor sentiment, with the precious metals benefiting from the
uncertainty," said Tom Kendall, metals strategist at Mitsubishi.
"In this environment, gold should test the $950 level again
sooner rather than later. But if the modest correction in oil
becomes more pronounced, then that would tend to restrain gold
in the short term," he said.
Oil fell to $105 a barrel, extending Friday's decline, after
the restart of a crude pipeline system in Iraq eased fears of an
extended disruption to exports from the oil-producing south.
Gold has lost more than 9 percent since spiking to an
all-time high of $1,030.80 an ounce on March 17. Record high oil
and expectations of further interest rate cuts in the United
States had propelled bullion to the record high levels.
"With oil prices easing and the dollar finding a firmer
footing, gold isn't probably able to surge higher as rapidly as
it did in the first two months of this year," said Pradeep Unni,
analyst at Vision Commodities.
"Although the long-term bull trend in gold remains in place,
we believe that we are in a high volatile period. Short-term
corrections are likely."
DOLLAR MOVES WATCHED
The dollar steadied but was stuck near an all-time low
against the euro as investors awaited signals on the health of
the U.S economy from data due later this week, including a jobs
report on Friday.
U.S. employers are expected to have cut payrolls for a third
straight month during March. The data may offer more clues on
the state of the economy and the outlook for interest rates.
The dollar is down more than 8 percent on the quarter versus
the euro, its worst performance in three years.
A weaker dollar makes gold cheaper for holders of other
currencies and often lifts bullion demand.
Analysts said gold's fundamentals were intact amid supply
constraints -- heightened recently by a power crisis that has
disrupted mining in South Africa, the world's main platinum
producer and the second-largest gold producer.
"Fundamentally, lower production out of South Africa and
expected stronger demand out of India and China should see gold
prices recover in the autumn, if not earlier," Fairfax
investment bank said in a daily report.
U.S. gold futures for June delivery <GCM8> rose $5.9 an
ounce to $936.50, having fallen 1.83 percent on Friday.
In other metals, platinum <XPT=> rose to $2,027/2,037 an
ounce from $2,000/2,010 on Friday, while silver <XAG=> firmed to
$18.00/18.05 an ounce from $17.88/17.93. Spot palladium <XPD=>
rose to $443/448 an ounce from $441/445.
(Reporting by Atul Prakash; editing by Elizabeth Piper)
