* Dollar hits multi-month lows versus euro, sterling, others
* Rising oil, industrial metal prices fuel inflation fears
(Updates throughout, changes dateline-pvs TOKYO)
By Jan Harvey
LONDON, June 1 (Reuters) - Gold rose to three-month highs
above $985 an ounce in Europe on Monday as investors bought
bullion as a hedge against dollar weakness and the prospect of
future inflation, while expectations of economic recovery grew.
Analysts are worried government measures to boost liquidity
in the financial markets will lead to soaring prices once
economic activity picks up.
Spot gold <XAU=> was at $987.40 an ounce at 0924 GMT,
against $978.20 an late in New York on Friday. Analysts say a
return to February's high of $1,005.40 an ounce is in sight.
"The dollar is still under pressure, and commodities
generally are upbeat at the moment," said Simon Weeks, director
of precious metals at the Bank of Nova Scotia. "People are
definitely buying hard assets as opposed to hard currencies."
Gold is an attractive investment both to those who believe
the economy is on track for recovery and those who think there
may be more trouble ahead, he said.
"If things are getting better... it will go along as part of
the commodities sector, (but) there is enough concern out there
that some safe haven buying is also coming back in," he said.
The dollar slid broadly, hitting multi-month lows against
commodity-related currencies such as the Australian dollar as
well as the euro and sterling, as optimism about the economy
boosted currencies perceived to be riskier. []
Currency traders will be closely watching a raft of U.S.
data due later this week, starting with the ISM manufacturing
survey on Monday and culminating in key May non-farm payrolls
numbers on Friday, for its influence on the dollar.
"The confluence of negative factors for the U.S. dollar
looks destined to keep it on the back foot over the coming
week," said Calyon currency analysts.
Data showing Chinese industrial activity expanded in May
helped offset news of GM's preparation for bankruptcy, fuelling
gains in industrial commodities and boosting world stock markets
to their highest in seven months. [] []
SUSTAINED HOPES
Oil rose nearly 2 percent to a new seven-month high as stock
market optimism and sustained hopes for an economic recovery
extended its best monthly gains in a decade. []
Rising crude prices typically boost buying of gold as a
hedge against oil-led inflation, and raise interest in
commodities as an asset class.
While inflation fears and currencies are boosting interest
in gold, buying of jewellery and bullion-backed exchange traded
funds remains relatively lacklustre. [] []
Data released Friday showed a hefty rise in speculative net
long positions on New York's COMEX futures exchange. However,
this may leave gold vulnerable to a correction, as such
positions are easily liquidated, analysts said. []
"It is worth noting that speculators on Comex are now very
long," said UBS analyst John Reade in a note. "With no sign of
strong inflows into the ETFs, the dollar must weaken further for
gold to make more ground."
Silver <XAG=> tracked gold higher, rising to a near
ten-month high of $15.94 an ounce. Later the metal was at $15.92
an ounce against $15.74.
Among other precious metals, platinum <XPT=> was quoted at
$1,218.50 an ounce against $1,187 late in New York on Friday,
while palladium <XPD=> was at $236 an ounce against $234.
"Platinum prices were buoyed by U.S. dollar weakness and the
rally in the broader commodities sector," said HSBC in a note.
(Reporting by Jan Harvey; Editing by Anthony Barker)
