Gold rises after U.S. inflation data

LONDON (Reuters) - Gold prices extended gains on Tuesday as traders bought into the metal as a currency hedge amid weakness in the U.S. dollar, with a larger-than-expected rise in U.S. producer prices also fuelling gains.

A rise in other commodities such as oil and the industrial metals is further supporting the gold price, traders said.

Spot gold was bid at $925.10 an ounce at 1311 GMT (9:11 a.m. EDT), against $920.00 an ounce late in New York on Monday. U.S. gold futures for August delivery on the COMEX division of the New York Mercantile Exchange rose $2.70 to $925.20 an ounce.

"(Gold) fell last week on commodities liquidation, but held above $900, which is good," said Simon Weeks, head of precious metals at the Bank of Nova Scotia. "Now buyers are back as they focus on an alternative to currencies."

The euro held its gains against the dollar after U.S. retail sales and producer price data beat expectations. <FRX/>

A burst of confidence in U.S. financial stocks lifted global equities on Tuesday, while a strong set of earnings from Goldman Sachs (GS.N) further lifted sentiment.

Rising equities also helped appetite for other assets such as oil, which climbed back above $60 a barrel, and industrial metals. Strength in other commodities tends to support gold.

The consensus-beating rise in the U.S. PPI, twice as big as expected, is also reigniting fears over rising inflation, against which gold is often bought as a hedge. June's producer prices rose 1.8 percent.

Buying of physical gold remained lackluster, however. Demand from the world's largest bullion consumer, India, suffered from a summer lull.

ETF FLAT

On the investment side, holdings of the main gold exchange-traded fund, the SPDR Gold Trust, were flat for a third session on Monday.

"Combined with equities' performance, we see credit market risk as an important determinant of ETF gold holdings," said Standard Bank in a note. "While credit market risk remains in the financial system, it's still much lower than in Q4:08 and Q1:09."

In supply news, workers in South Africa's gold sector rejected a wage hike offer by gold producers, and vowed to escalate the dispute.

South Africa's National Union of Mineworkers said a strike in the gold sector was "highly likely" after the rejection.

Silver recovered from the previous session's 10-week low to rise in gold's wake. Silver was at $12.89 an ounce against $12.82.

Nontheless, "silver looks very weak, with a potential move back toward strong support at $12.00," said VTB Capital analyst Andrey Kryuchenkov in a note.

Platinum was at $1,125.50 an ounce against $1,110, while palladium was at $235 against $233.

ETF Securities said holdings of its London palladium-backed exchange-traded commodity (PHPD.L) rose 4 percent to a record on Monday, and were up nearly 7 percent week-on-week.

Palladium is favored by investors as a cheaper alternative to platinum, analysts said.

(Reporting by Jan Harvey; Editing by Keiron Henderson)