(recasts, adds quotes, changes prices, pvs TOKYO)
By Atul Prakash
LONDON, May 12 (Reuters) - Gold fell on Monday after erasing
overnight gains, as the dollar's recovery against key currencies
lowered the metal's appeal as an alternative investment.
The metal, traditionally seen as a safe-haven asset, did not
react to news that an earthquake with a magnitude of 7.5 struck
Sichuan province in southwest China [].
Gold <XAU=> rose as high as $889.10 an ounce and was quoted
at $881.95/882.95 at 1020 GMT, against $886.30/888.30 in New
York late on Friday, when it hit a 10-day high of $889.80.
"We could see gold prices dip below $850, if physical demand
remains soft," said Suki Cooper, precious metals analyst at
Barclays Capital.
"But overall, a number of positive drivers are still
continuing to underpin gold prices," she said referring to
strong oil prices.
The dollar gained to close in on a two-month high against a
basket of currencies, as a slight rise in risk appetite and
growing speculation of an end soon to cuts in U.S. interest
rates boosted the U.S. currency.
Weak economic data suggesting that Australia and New Zealand
may be heading for rate cuts, pushed down the high-yielding
currencies of both countries. Lower rates would trim their rate
advantage against other currencies including 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 eased, but hovered near Friday's record high above $126
a barrel. Oil has jumped about 13 percent since slipping to
$110.53 a barrel on May 1.
"What is supporting gold very significantly on the downside
right now is crude oil prices," said Walter De Wet, precious
metals analyst at Standard Bank.
"At current levels, it's likely that we might see some
physical gold buying again coming into the market. We have
obviously seen it drying up at around about $959-$960."
DEFENSIVE TRADING
Gold slipped below $900 in late April and has since shown
little resilience. It hit a record high of $1,030.80 in March.
"Given the metal's reaction to pockets of dollar strength,
it seems gold will find it tough to rally significantly," said
James Moore, precious metals analyst at TheBullionDesk.com.
In other markets, most active June gold futures contract
<GCM8> on the COMEX division of the New York Mercantile Exchange
stood at $883.80 an ounce, down $2.00 from the previous close.
"The gold price continues to trade defensively," Jude
Brhanavan, analyst at Deutsche Bank said in a report.
"The risk of a short term bounce in the U.S. dollar in an
environment of still aggressive net speculative length in the
gold market is sustaining ongoing downside risks for the gold
price."
Spot platinum <XPT=> fell to $2,037.50/2,057.50 an ounce
from $2,074.00/2,094.00 in New York on Friday, when it rose to
$2,095, the highest since March 17, as the launch of U.S.
platinum exchange-traded notes boosted sentiment.
Silver <XAG=> also fell to $16.79/16.84 an ounce from
$16.82/16.88 late on Friday, but palladium <XPD=> rose to
$438.50/446.50 an ounce from $432/440.
(Additional reporting by Lewa Pardomuan in London and Risa
Maeda in Tokyo)
(Editing by Editing by Peter Blackburn)
