* Gold pares gains after Japan quake weighs on markets
* ECB's first rate hike since 2008 stirs inflation worries
* Gold underpinned as Portugal seeks EU bailout
* Coming up: U.S. wholesale inventory data Friday
(Recasts, updates prices, market activity; new byline, changes
dateline, previously LONDON)
By Frank Tang
NEW YORK, April 7 (Reuters) - Gold was little changed on
Thursday afternoon, retreating from a record high after another
strong earthquake hit Japan.
In early trading, gold rose to a record for a third
straight session on inflation worries and expectations that the
European Central Bank's first rate hike since 2008 would weaken
the dollar.
Crude oil and global equities also retreated after a strong
earthquake shook Japan, pressuring gold. The dollar
strengthened against the euro instead of weakening as many had
expected, which put further pressure on gold.
Even though the European Central Bank raised rates,
investors were not convinced that more rate hikes were on the
way.
"You're back to a dollar story for the first time in a long
time." said Frank McGhee, head precious metals trader of
Integrated Brokerage Services. "Gold prices and the dollar both
benefit from that rate hike because it increases the
differentials between euro zone and the U.S. interest rates."
Rising iterest rates generally are negative for gold, but
investors bought bullion immediately after the ECB rate hike
because they expected the dollar to weaken in the future.
Spot gold <XAU=> hit a record $1,464.80 an ounce and was
later down 0.1 percent to $1,456.14 at 1:14 p.m. EDT (1714
GMT). U.S. gold futures for June delivery <GCM1> eased 0.1
percent to $1,357.50 an ounce.
The ECB raised rates by 25 basis points to 1.25 percent to
counter inflation pressure. Gold has risen more than 2 percent
this week, benefiting from rallies in crude oil and corn and as
Portugal requested a European Union rescue package.
"Of course the ECB will be vigilant in monitoring inflation
developments very closely. But it is more inflation
expectations that made the ECB concerned, and less the actual
increase (in inflation)," said Peter Fertig, a consultant at
Quantitative Commodity Research.
ECB President Jean-Claude Trichet said the rate hike was
not necessarily the start of a series, disappointing some who
had expected a more hawkish tone. []
The traditional inverse correlation between gold and the
dollar appeared to be strengthening this week to a negative
0.8, as gold hit successive records, but the link could be
erratic in the near term. A correlation of minus 1 indicates a
perfect inverse link, while a correlation of plus 1 indicates
that both are moving in perfect tandem.
SILVER EDGES UP, BUT OFF 31-YEAR HIGH
Among other precious metals, silver <XAG=> gained 0.2
percent at $39.50 an ounce, just off the previous session's
31-year high at $39.75.
Silver has not shaken its image of an unpredictable metal
with high volatility and chronic oversupply, but investors seem
set on driving prices beyond the recent 31-year high.
[]
On fundamentals, industrial demand for silver is expected
to rise less than 10 percent this year, after prices more than
doubled to 31-year highs since late 2010, the head of metals
research and consultant GFMS said on Thursday. []
Platinum <XPT=> was down 0.4 percent to $1,781 an ounce,
while palladium <XPD=> shed 0.2 percent to $776.50.
Prices at 1:14 p.m. EDT (1714 GMT)
LAST NET PCT YTD
CHG CHG CHG
US gold <GCM1> 1457.50 -1.00 -0.1% 2.5%
US silver <SIK1> 39.530 0.143 0.4% 27.8%
US platinum <PLN1> 1788.90 -8.90 -0.5% 0.6%
US palladium <PAM1> 779.05 -5.55 -0.7% -3.0%
Gold <XAU=> 1456.14 -0.86 -0.1% 2.6%
Silver <XAG=> 39.50 0.07 0.2% 28.0%
Platinum <XPT=> 1781.00 -6.45 -0.4% 0.8%
Palladium <XPD=> 776.50 -1.60 -0.2% -2.8%
Gold Fix <XAUFIX=> 1459.50 3.00 0.2% 3.5%
Silver Fix <XAGFIX=> 39.51 -12.00 -0.3% 29.0%
Platinum Fix <XPTFIX=> 1780.00 7.00 0.4% 2.8%
Palladium Fix <XPDFIX=> 778.00 6.00 0.8% -1.6%
(Additional reporting by Jan Harvey in London)
