* Weak dollar, oil turnaround, uncertainties lift gold
* Jewelry demand picks up in India ahead of Diwali
* BofA Merrill Lynch expects gold to hit $1,500/oz in 2011
(Recasts, updates comments, closing prices, market activity,
adds NEW YORK dateline/byline)
By Frank Tang and Jan Harvey
NEW YORK/LONDON, Oct 5 (Reuters) - Gold prices rose toward
$1,020 an ounce on Monday, gaining more than 1 percent, on a
combination of dollar weakness, a turnaround in crude oil
prices and lingering economic uncertainty.
Even though a softer dollar and seasonal physical demand
should support prices, the gold market could still be
vulnerable to near-term pullbacks because of record high
positions held by speculators, analysts said.
Bruce Dunn, vice president of trading at New Jersey-based
Auramet Trading, said gold's late rally was driven by a weaker
dollar, stronger oil prices and simmering geopolitical tensions
in the Middle East.
Dunn also cited flight-to-quality demand in gold for its
strength.
"I think the (financial) markets are nervous," he said.
U.S. December gold futures <GCZ9> settled up $13.50, or 1.3
percent, at $1,017.80 an ounce on the COMEX division of the New
York Mercantile Exchange. December's session high was
$1,018.90, the highest price since Sept. 24.
Spot gold <XAU=> was at $1,016.35 an ounce at 2:44 p.m. EDT
(1844 GMT), up from $1,001.30 late in New York on Friday.
The dollar fell on Monday after a meeting of G7 finance
ministers in Istanbul brought no surprises, which the market
took as a sign policy-makers are comfortable with a gradual
dollar decline as part of global economic rebalancing. []
Global stocks also climbed, extending gains after data
showed the U.S. Institute of Supply Managers' services index
rose more than expected last month. Wall Street rose nearly 2
percent. []
Elsewhere, oil prices, which are often tracked by gold,
erased sharp initial losses to trade above $70 a barrel, nearly
1 percent higher, on broad-based economic optimism. []
FESTIVAL DEMAND TRICKLES IN
Gold prices took some support from a rise in physical
demand for the metal, with jewelry sales in India, the world's
largest gold consumer last year, recovering ahead of the
festival of Diwali this month. []
The strong rupee was helping offset a sharp rise in dollar
gold prices, dealers said. Dealers also report buying from Iran
after geopolitical tensions flared up in the Islamic republic
last week.
"Scrap selling has been very slow since last week (and) I
am seeing some light physical demand around -- not huge, but
still surprising at these levels," said Afshin Nabavi, head of
trading at MKS Finance. "I think these two factors could open
the path for a higher price, especially if the U.S. dollar's
weakness continues."
Meanwhile, holdings of the world's largest bullion-backed
exchange-traded fund, New York's SPDR Gold Trust <GLD>, edged
up 1.221 tonnes, or 0.1 percent, on Friday. []
Bank of America Merrill Lynch said on Monday gold prices
will hit $1,500 an ounce in 2011, when oil prices move back
above $100 a barrel as emerging market growth creates
shortages. []
However, analysts say they are still concerned about the
volume of speculative net long positions in U.S. gold futures,
though these positions declined a touch in the week to Sept. 29
from the record levels they reached the week before.
Among other precious metals, silver also rose, helped by
gains in gold. Spot silver <XAG=> was at $16.55 an ounce,
against its previous finish of $16.12. Platinum <XPT=> was at
$1,292.50 an ounce, against $1,278, while palladium <XPD=> was
at $298.50, against $294, its late quote in New York on
Friday.
Close Change Pct 2008 YTD
Chg Close % Chg
US gold <GCZ9> 1017.80 13.5 1.3 884.3 15.1
US silver <SIZ9> 16.535 0.305 1.9 11.295 46.4
US platinum <PLF0> 1301.80 18.40 1.4 941.50 38.3
US palladium <PAZ9> 303.30 5.10 1.7 188.70 60.7
Prices at 2:44 p.m. EDT (1844 GMT)
Gold <XAU=> 1016.50 15.20 1.5 878.20 15.7
Silver <XAG=> 16.55 0.43 2.7 11.30 46.5
Platinum <XPT=> 1292.50 14.50 1.1 924.50 39.8
Palladium <XPD=> 298.50 4.500 1.5 184.50 61.8
Gold Fix <XAUFIX=> 1005.50 1.25 0.1 836.50 20.2
Silver Fix <XAGFIX=> 16.23 2.00 0.1 14.76 10.0
Platinum Fix <XPTFIX=> 1279.00 6.00 0.5 1529 -16.4
Palladium Fix<XPDFIX=> 298.00 1.00 0.3 365.0 -18.4
(Editing by Walter Bagley)
