(updates to afternoon with prices)
By Atul Prakash
LONDON, May 6 (Reuters) - Gold rose more than 1 percent on
Tuesday on bargain hunting and record-high oil that lifted
bullion's appeal as an inflation hedge, but investors remained
cautious after a recent sell-off to four-month lows.
The precious metal was at $881.10/882.30 an ounce at 1505
GMT, against $871.15/872.55 in New York late on Monday but still
well below a record high of $1,030.80 hit on March 17.
"We saw a fairly big retracement last week and there was a
feeling that probably it was overdone. There has been some
buying as support is coming back in," said Daniel Hynes, metals
strategist at Merrill Lynch.
"But it doesn't look strong enough to really kick-start a
sustained upward trend. The effect of oil is less than we have
seen in the past. It may continue to trade in a fairly tight
range and struggle to push above $900 in the short term."
The bullion market got some support from the dollar, which
extended declines against the euro and a basket of six major
currencies for a second day after earnings results from Fannie
Mae <FNM.N> came in weaker than expected.
Fannie Mae, the largest provider of U.S. home financing,
reported its third straight quarterly loss as the U.S. housing
crisis took another turn for the worse in the first quarter. For
more details, click [].
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 stood firm after setting a new record high above $121 a
barrel, the latest spurt in an advance that has seen prices
double over the past 12 months.
"It's playing up and down and the market is a bit confused
here," said Frederic Panizzutti, metals analyst at MKS Finance.
Despite record high oil prices and a weaker dollar, it
appeared that gold was not taking much direction from these
factors, he said, adding gold's correlation with oil and the
dollar had weakened.
U.S. gold futures for June delivery <GCM8> rose $8.90 an
ounce to $883.00 an ounce.
PHYSICAL DEMAND
But some analysts said gold was expected to gain further.
"Seasonally strong physical demand should continue to
provide a good base for gold in the coming sessions," said James
Moore, metals analyst at TheBullionDesk.com.
"And with oil prices setting fresh records investors may
look to increase their gold holdings as a hedge against
inflation," he said in a daily market report.
India, the world's largest gold consumer, celebrates on
Wednesday and Thursday Akshaya Tritiya, a festival when many
Hindus buy precious metals in the belief it will give them
lasting prosperity.
Dealers also reported buying interest from jewellers and
bargain hunters in the Middle East, Indonesia and Thailand.
Despite a pick-up in physical buying, sentiment remained
weak due to heavy withdrawals of the metal from exchange-traded
funds (ETFs) in the past days.
Gold held in StreetTRACKS Gold Shares, the world's largest
gold-backed ETF <XAUEXT-NYS-TT>, was unchanged at 580.45 tonnes,
but down from a record high of 663.83 tonnes in mid-March.
Tokyo precious metal markets were closed for a holiday.
Spot platinum <XPT=> rose to $1,939/1,959 an ounce from
$1,914.50/1,934.40 late on Monday, but was still well below a
record high of $2,290 an ounce on March 4.
Silver <XAG=> rose to $16.94/17.00 from $16.64/16.70 an
ounce. The metal struck a 27-year high of $21.24 on March 17.
Palladium <XPD=> was up at $425/433 from $416.50/424.50 an
ounce, but remained below a 6-1/2-year high of $590 on March 4.
(Additional reporting by Lewa Pardomuan in Singapore)
(Reporting by Atul Prakash; editing by Pratima Desai)
