(Updates with quotes, prices)
By Atul Prakash
LONDON, March 10 (Reuters) - Gold recovered from session
lows on Monday after a sharp decline, as record high oil prices
and a weaker dollar attracted investors and speculators back
into the market.
Palladium fell nearly 6 percent to a three-week low before
partially recovering, while platinum trimmed losses after
slipping about 5 percent to its lowest level in one month.
Analysts said gold was likely to trade in a range ahead of a
U.S. Federal Reserve meeting next week, but expectations of
further interest rate cuts in the United States were likely to
support the market over the medium to long-term.
Spot gold <XAU=> fell as low as $961.00 an ounce and was
quoted at $968.75/969.00 at 1528 GMT, against $972.60/973.40
late in New York on Friday.
"The market was feeling a bit toppish, but now with oil
trading at around $107 a barrel, people are regretting their
sales and tip-toeing back to gold for sure," said David Holmes,
director of metals sales at Dresdner Kleinwort.
"The market is characterised by volatility. A lot of the
price action is speculative and people are quick to get in and
out of the market at the moment."
Oil hit a record high of $107 a barrel, reversing earlier
losses as investors bought oil as a hedge against a depressed
dollar and inflation.
Gold is generally seen as a hedge against oil-led inflation.
The metal also often moves in the opposite direction to the
dollar as a weaker U.S. currency makes the metal cheaper for
holders of other currencies and lifts bullion demand.
The dollar marginally fell against the euro after rising.
"The upward trend is still in place. People are just waiting
for something to take it up towards $1,000 or may be above it,"
said Michael Widmer, metals analyst at Lehman Brothers.
"I wouldn't be surprised if prices didn't do a lot ahead of
the next week's Fed meeting and, the closer we get, the less
likely that people are to take big positions."
CONSOLIDATION PHASE
People were cautious as the Fed meeting would give a lot of
information on issues such as the U.S. interest rate outlook and
the health of the U.S. economy, Widmer said.
Gold hit an historic high of $991.90 an ounce on March 6
before funds cashed in. The metal had gained nearly 20 percent
in 2008, on the top of a 32 percent rise last year.
"The metal's failure to break higher on Friday suggests the
market may, just for the short-term, be in need of a phase of
consolidation before challenging $1,000," said James Moore,
precious metals analyst at TheBullionDesk.com.
In industry news, South Africa's Chamber of Mines said the
country's gold production fell 7.4 percent to 254,685 kg in 2007
mainly because of lower ore grades as well as safety-related
mine closures. []
Platinum marginally recovered after suffering heavily on
news that mines in South Africa, the world's top producer, would
get 95 percent electricity supply against 90 percent.
"What undermined platinum was Eskom's announcement that it
would raise power supply to South African mines to 95 percent,"
Holmes of Dresdner said, adding the market was extremely long
and that the news had prompted sales.
Platinum <XPT=> fell to a low of $1,926 an ounce before
rising to $1,960/1970, against $2,020/2,030 in New York. The
metal has fallen 16 percent in less than a week after hitting a
record high of $2,290 on March 4.
"With financial markets under extreme pressure at the
moment, we expect de-leveraging pressure will continue for the
near term. Platinum and especially palladium have more
short-term downside risk," said Robin Bhar, metals strategist at
UBS Investment Bank.
Palladium <XPD=> was at $467/472 an ounce after falling to a
low of $457, against $485/490 in New York, while silver <XAG=>
fell as low as $19.19 an ounce before rising to $19.53/19.58,
against $20.11/20.16 on Friday.
(Reporting by Atul Prakash; editing by Pratima Desai)
