NEWS / Trade Policy

Gold gyrates above $580; oil and dollar in focus

SINGAPORE - Gold rose as much as $2.90 on a steady oil price, but gains were capped by a firmer dollar which diminishes the metal's appeal as an alternative investment.

Gold, which has an inverse correlation to the dollar, hit a high of $585 an ounce as crude oil moved towards $71 a barrel, but the metal later retreated as the oil price eased back.

By 0330 GMT, spot gold was quoted at $583.80/584.50 an ounce, higher than $582.10/582.80 late in New York on Thursday, when it dropped more than 1 percent because of a rise in the U.S. currency.

The benchmark April 2007 gold contract on the Tokyo Commodity Exchange fell 11 yen per gram to 2,204 yen, tracking losses in New York's COMEX market.

"Gold had seemed to have steadied over the last week and the recent gains started to restore some confidence for future direction of gold," said N M Rothschild in a daily report.

"However, the sudden downturn overnight reinforced perceptions that gold is still searching for a clear and firm direction as it continues to react day-to-day to the U.S. dollar movements," it said.

The dollar traded near a two-month high against the yen ahead of an expected rise up in U.S. interest rates next week and on caution over the fate of Bank of Japan Governor Toshihiko Fukui.

The yen's outlook remained clouded due to a prolonged flap over Fukui's investment years ago in an equity fund run by a financier now under arrest on suspicion of insider trading.

The dollar was little changed at 116.15 yen. The euro dipped to $1.2565 from around $1.2580.

The dollar has rallied in June on signs the Fed will hike interest rates for the 17th time next week and possibly again in August. Higher rates support the dollar and weigh on gold by reducing its allure as an asset.

But some dealers said gold's falls had ignited demand from jewellery manufacturers and investors. Tensions in the Middle East, record-high oil prices and uncertainty in the dollar's outlook lifted gold to a 26-year high of $730 in mid-May before a heavy sell-off kicked in.

"Fabrication demand for gold has recovered in the past few weeks, as consumers replenish inventories that have been drastically run down," Commonwealth Bank of Australia said in a report.

"Retail investors are also buying again; flows into gold ETFs are experiencing a pick-up, as smaller investors take the view that gold under $600 an ounce represents much better value," it said.

Exchange-traded funds enable investors to trade securities on an exchange and give investors a return based on commodities prices, without the need to trade futures or to take physical delivery.

Platinum dropped to $1,168/1,173 an ounce from $1,178/1,184 late in New York. Sister metal palladium fell to $301/306 an ounce from $309/315.

Silver edged down to $10.14/10.24 an ounce from $10.32/10.42.