* Bullion hits highest level since March 26
* Dollar plumbs fresh depths on Fed comments
* Gold's close above $935.50 Tuesday may herald fresh gains
(Updates throughout, changes dateline - pvs TOKYO)
By Jan Harvey
LONDON, May 21 (Reuters) - Gold rose to a fresh eight-week
high in Europe on Thursday as the dollar slid to its lowest
level in five months against a basket of currencies, prompting
buying of the precious metal as an alternative asset.
The metal was poised to make further gains from a technical
point of view after closing above $935.50 on Wednesday, analysts
said. However, it could be due for a brief period of correction
before making a fresh leg higher.
Spot gold <XAU=> hit a high of $943.40 an ounce and was at
$940.35 at 0848 GMT, against $937.10 late on Wednesday. It
breached $940 an ounce that session for the first time since
March, as dollar-related buying broke resistance around $933.
"Bulls seem to be on rampage, and dollar weakness came at
the right time, when gold broke out of resistance," said Pradeep
Unni, senior analyst at Richcomm Global Services.
"Though fundamentally, the dollar weakness story, fears of
future inflation and ongoing financial uncertainty could support
the metal, charts have now ticked into the overbought zones," he
said. "This warns of an impending correction, (which) may
attract fresh buying."
The dollar slid to its lowest in nearly five months against
a basket of currencies after the Fed said it considered buying
more securities at its last policy meeting, which would have
injected more dollars into the global financial system. []
A softer dollar typically boosts gold, both because bullion
can be bought as an alternative to the U.S. currency and because
its weakness makes dollar-priced commodities cheaper for
non-U.S. buyers.
The two assets had given up their traditional relationship
as both reacted primarily to risk aversion. However as optimism
grows that the worst of the economic downturn is over, their
usual trading pattern returned.
PEAKS
Weakness on the equity markets also helped gold, as
investors switched their attention to precious metals. European
shares fell on Thursday after the Fed cut U.S. growth forecasts,
while world stocks fell from six-month peaks. []
"While the metal is likely to run into further scaled-up
resistance, the fact equity markets appear to have stalled and
inflation fears are on the increase should give gold increased
upwards momentum," TheBullionDesk.com analyst James Moore said
in a note.
"A break of chart resistance around $946 could see the metal
push to the March high of $967.30," he added.
Analysts said on Tuesday a close above $935.50 an ounce that
session could prime gold for a further move higher, and perhaps
even an assault on February's highs above $1,000. []
Platinum <XPT=> was at $1,148.50 an ounce against $1,142
late in New York on Wednesday, while palladium <XPD=> was at
$233 against $230.
Fellow platinum group metal rhodium <RHOD-LON> rose another
$25 an ounce to $1,450 an ounce, and has climbed $125 or more
than 9 percent since Platinum Week began on Monday.
Silver <XAG=> was at $14.24 an ounce against $14.21.
Holdings of ETF Securities' London silver-backed exchange-traded
commodity <PHAG.L> rose by nearly 200,000 ounces on Wednesday,
and are up nearly 1.5 million ounces in the last fortnight.
[]
(Reporting by Jan Harvey; Editing by William Hardy)
