Gold ends lower but dollar weakness limits losses

NEW YORK/LONDON (Reuters) - Gold ended lower on Wednesday after briefly topping $1,000 an ounce earlier in the session, but worries about the dollar's gradual deterioration amid growing risk appetite should continue to boost bullion's appeal.

An announcement by the world's largest gold miner Barrick Gold (ABX.TO)(ABX.N) that it plans to eliminate its forward gold sales also underpinned prices, analysts said.

U.S. December gold futures settled down $2.70 at $997.10 an ounce on the COMEX division of the New York Mercantile Exchange.

Spot gold at $988.75 an ounce at 2:21 p.m. EDT (1821 GMT), compared with $995.20 late in New York on Tuesday.

Platinum also climbed to a 12-month high of $1,295 an ounce in early trade, boosted by the initial gains in gold prices and economic optimism. It was later at $1,275 an ounce against $1,283.

"There is strong investment interest at the moment, and the media interest after gold broke through $1,000 an ounce is also increasing interest on the speculative side," said Commerzbank analyst Eugen Weinberg.

Gold broke through the $1,000 mark for the first time since February on Tuesday and rallied to an 18-month high, boosted by technical buying momentum and a sharp slide in the dollar.

The precious metal touched a record $1,030.80 an ounce in March 2008. Analysts say that if prices manage to consolidate around $1,000 an ounce, rising risk aversion and dollar weakness could push them back toward this high.

On Wednesday, the dollar fell to a near one-year low against a basket of major currencies, extending a sharp decline from the previous day, as higher global equities spurred investors to move into riskier currency trades.

Questions over the dollar's status as a global reserve currency fueled selling of the U.S. unit on Tuesday. A weaker dollar tends to prompt buying of gold as an alternative asset.

In late sessions on Wednesday, however, the dollar trimmed initial losses, and that put pressure on gold.

CAUTION REIGNS

Daniel Smith, an analyst at Standard Chartered, said that a more cautious tone to the wider markets followed by a rally in asset prices over the summer months, and expectations China may move to diversify its foreign exchange holdings away from the dollar, were also lending support to the precious metal.

"Our view is that (gold) will keep pushing higher over the next few weeks and toward the end of the year, and that it will actually break through the previous high," Smith said.

James Steel, chief commodities analyst at HSBC in New York, said in a note that the likely response to gold at $1,000 an ounce would be for the recycled scrap market to increase and jewelry demand to contract, and that might undermine gold's rally.

Barrick Gold said it planned to eliminate its outstanding fixed-price gold hedges and a proportion of its floating hedges.

Miners have hedged by selling forward their unmined production as a means to lock in prices. But as prices have risen in recent years, they have tended to de-hedge, or cut back their hedged positions, to take advantage of price gains.

Among other precious metals, silver was at $16.29 an ounce against $16.41. Silver, which like copper or nickel is a largely industrial metal as well as an investment product, came under pressure from losses in the base metals early Wednesday.

Palladium was at $290 against its previous finish of $294.

(Reporting by Frank Tang and Jan Harvey; Editing by Lisa Shumaker)