* Jewellery and investment demand boost gold
* Equity investors seek safety in gold
* Recession, deflation knock sentiment
(Recasts, adds comment/detail, changes dateline, pvs Singapore)
By Pratima Desai
LONDON, Nov 20 (Reuters) - Gold prices rose on Thursday,
buoyed by interest from jewellery makers and investors seeking
safety, but a stronger dollar and lower oil prices are expected
to weigh on sentiment.
Spot gold <XAU=> was higher at $743.30/745.30 an ounce at
1119 GMT from $732.40 in New York late on Wednesday when it
touched $762.30 an ounce, its highest in more than a week.
Data from the World Gold Council showing an 18 percent jump
in demand for gold to 1,334.4 tonnes and a 56 percent rise in
investment demand to 382.1 tonnes in the third quarter has
helped sentiment. []
"Investment demand for gold should hold up because there is
strong risk aversion in the markets right now. That's why we are
optimistic gold will hold up," Barbara Lambrecht, analyst at
Commerzbank, said.
Gold is used as a hedge against turmoil in financial markets
-- equity prices in Europe and the United States are trading at
their lowest levels in more than five years. [] []
It is also used as an alternative currency to the dollar
when it is falling. But when the U.S. currency is rising it
makes metals denominated in dollars more expensive for holders
of other currencies.
The dollar hit a one-week high against the euro after the
U.S. Federal Reserve slashed growth forecasts for the world's
largest economy in 2009, which analysts say could mean deep
interest rate cuts. []
"Gold is following the dollar closely," Lambrecht said.
"There is a risk recession could dampen jewellery demand."
DEFLATIONARY IMPULSE
Fears of rising inflationary pressures, crisis in credit
markets and the dollar's collapse earlier this year pushed gold
prices to a record $1,030.80 an ounce in March.
But now weighing on gold is the prospect of deflation, with
recession now a reality in Japan and Germany. []
"Deflationary impulses in the economy, according to monetary
theory, are negative for gold prices, as they increase the
purchasing power of currencies and reduce the need to own gold
as an inflation hedge," HSBC said in a note.
"A low risk of outright deflation may help put a floor under
gold prices ... The inability of oil to rally is another sign of
deflation."
Crude <CLc1> oil prices have tumbled by more than 60 percent
to about $53 a barrel since a record above $147 a barrel in July
on fears of collapsing growth and demand.
Growth fears have also hit platinum used to make
autocatalysts that clean car emissions. Platinum prices have
plunged from $2,290 an ounce in March.
News of falling car sales and a rapidly deteriorating
outlook for the auto sector accelerated the sell-off.
Doubts about whether a $25 billion rescue plan to bail out
U.S. auto makers will be passed could further damage sentiment.
[]
"It doesn't look as if it's going to happen," a London-based
trader said. "But they've got two days."
Platinum <XPT=> was at $804/824 an ounce from $808.50 late
on Wednesday and silver <XAG=> at $9.35/9.43 from $9.24.
Palladium <XPD=> jumped more than 6 percent to $192 an ounce
on bargain hunting. It was last at $181 from $180.50.
(Reporting by Pratima Desai; editing by Sue Thomas)
