* Jewellery and investment demand boost gold
* Equity investors seek safety in gold
* Recession, deflation knock sentiment
(Updates prices)
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 against the euro and lower oil
prices are expected to weigh on sentiment.
Spot platinum <XPT=> was bid at a three-week low of $770.50
an ounce, a near five percent fall from Wednesday, as news from
the auto industry reinforced demand worries for the metal used
in autocatalysts. [] []
Spot gold <XAU=> was quoted at $748.25/750.25 an ounce at
1606 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 slid below $50 a barrel, the lowest since
January 2007. Prices are down more than 60 percent since a
record above $147 a barrel in July on the weak outlook for
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 has further damaged sentiment.
[]
Platinum <XPT=> was quoted at $773/793 an ounce from $808.50
late on Wednesday.
Silver <XAG=> tracking gold lower lost 5 percent to hit
$8.79 and was last at $8.95/9.03 from $9.24.
Palladium <XPD=> jumped more than 6 percent to $192 an ounce
on bargain hunting during the morning session. It was last at
$175/183 from $180.50.
(Reporting by Pratima Desai; editing by Editing by Peter
Blackburn)
