* Gold climbs to firmest level since late February
* Dollar eyes 5-month lows vs basket of currencies
* Oil prices hold near 6-month peak
(Updates throughout, changes dateline-pvs TOKYO)
By Jan Harvey
LONDON, May 29 (Reuters) - Gold on Friday rallied through
$970 an ounce for the first time since February in Europe as
traders bought the metal as a hedge against weakness in the
dollar.
Rising oil prices, reports of a pick-up in Middle Eastern
demand, and firm buying in India, the world's biggest gold
consumer, during the wedding season are also supporting prices,
analysts said.
Spot gold <XAU=> was bid at $972.60 an ounce at 0923 GMT,
against $958.80 an ounce late in New York on Thursday.
"Forex is really the big driver of the market," said senior
Commerzbank trader Michael Kempinski. "Oil, which is at its
highest this year, is also supporting gold pretty well."
The dollar <.DXY> fell towards five-month lows against a
basket of currencies on Friday as hopes the worst of the
downturn has passed dented safe-haven buying of the unit, and
amid worries over U.S. government debt levels. []
Its slip prompted investors to take refuge in gold, pushing
prices up to three-month highs.
"In the near term, the dominant theme behind moves in gold
appears to be moves in the U.S. dollar rather than inflation
expectations - which declined yesterday after a recovery in the
U.S. bond market," said UBS analyst John Reade in a note.
"But a combination of a weaker dollar and rising inflation
expectations would represent the perfect storm for gold," he
added.
Oil prices, often seen as a key indicator of rising
inflation, rallied to fresh six-month highs on Friday and are on
track for their largest monthly percentage gain in more than ten
years. []
INVESTMENT DEMAND
Silver prices tracked gold higher to a near ten-month peak
of $15.54 an ounce, the metal's strongest level since August 8.
Prices are benefiting from strong investment demand for the
metal, with buying of silver-backed exchange-traded funds
soaring since the beginning of 2009 and speculative net long
positions on the COMEX futures exchange rising.
While industrial and photographic demand for the metal is
lacklustre, investors are buying the metal as a cheap proxy for
gold. It too is being seen as a good portfolio diversifier to
hedge against dollar weakness and inflation.
"This trend (for rising prices) is likely to persist as we
head into the summer months and more `green shoots' offer
additional support to silver's appeal as an industrial metal as
well," said VTB Capital in a note.
Among other precious metals, platinum <XPT=> was quoted at
$1,162.50 an ounce against $1,139.50, having earlier touched a
three-week high of $1,164, while palladium <XPD=> was at $234
against $234.
ETF Securities said holdings of its platinum <PHPT.L> and
palladium <PHPD.L> exchange-traded funds rose on Thursday, by
just under 6,000 ounces and around 5,000 ounces respectively.
Holdings of its three gold-backed ETFs also ticked up nearly
11,000 ounces to 7.477 million ounces, it added.
(Reporting by Jan Harvey; Editing by Keiron Henderson)
