(Recasts, changes dateline pvs SINGAPORE)
By Atul Prakash
LONDON, May 7 (Reuters) - Gold eased on Wednesday as a rise
in the dollar against the euro lowered the metal's appeal as an
alternative investment, but strong oil prices limited declines.
Spot bullion <XAU=> hit a high of $881.05 an ounce before
slipping to $874.20/875.20 at 0956 GMT, against $877.40/878.60
late in New York on Tuesday and a record high of $1,030.80 on
March 17.
"Tomorrow's ECB rate-setting meeting might reverse the
euro/dollar move, but another test of downside support around
$850 now appears more likely for gold in the short-term rather
than a push to $900," said Tom Kendall, metals strategist at
Mitsubishi Corporation.
"The recent disconnect between the price of gold and oil
means that weakness in the price of crude is not a prerequisite
for a sell-off in bullion."
The dollar rose ahead of a European Central Bank meeting on
Thursday, heading towards a two-month high against a basket of
currencies after a Federal Reserve official's comments added to
a view that the cycle of aggressive U.S. interest rate cuts may
be ending.
Kansas City Fed President Thomas Hoenig said late on Tuesday
that rates will need to be raised in a timely way as the central
bank grapples with a serious threat of inflation, prodding the
euro towards a five-week low versus the dollar. []
A firmer dollar makes gold costlier for holders of other
currencies and often lowers bullion demand. The metal is also
generally seen as a hedge against oil-led inflation.
Oil slipped $122 a barrel ahead of key U.S. weekly inventory
data, after hitting new record the previous day on supply
concerns and a forecast from Goldman Sachs that oil could trade
up to $200 a barrel within two years.
OTHER MARKETS
Some analysts said gold would look at other markets for
short-term direction.
"Should oil stabilise or slip back, then we would expect
gold prices to ease in the coming weeks. However, any weakening
of the dollar or severe escalation in oil prices would quickly
result in high gold prices," investment bank Fairfax said in a
report.
Investors said a rise in gold holdings in the world's top
exchange traded fund for bullion, StreetTRACKS Gold Shares
<XAUEXT-NYS-TT>, suggested that physical investors were putting
their money back into gold after a drop to a four-month low of
$845 last week.
Gold held in StreetTRACKS rose to 584.44 tonnes from 580.45
tonnes last week but this was still down from a record of 663.83
tonnes in mid-March.
In the physical market, steady demand from the electronics
sector combined with tight supply pushed premiums for gold bars
in Tokyo to 50 U.S. cents an ounce on top of London spot prices,
up from 25 cents last week <GOLD/ASIA1>.
In other markets, gold futures for June delivery <GCM8> on
the COMEX division of the New York Mercantile Exchange fell $2.0
an ounce to $875.70 an ounce.
The most active Tokyo platinum contract jumped by the daily
300 yen limit as speculators built up positions after a long
holiday weekend. The benchmark contract for April 2009 delivery
<0#JPL:> rose to 6,335 yen per gram.
Spot platinum <XPT=> fell to $1,932.50/1,952.50 an ounce
from $1,947.50/1,967.50 late on Tuesday, while silver <XAG=>
declined to $16.76/16.82 an ounce from $16.84/16.91. Palladium
<XPD=> fell to $422.50/430.50 an ounce from $427.50/435.50.
(Reporting by Atul Prakash; editing by Daniel Magnowski)
