Gold cuts loss as dollar slips, oil weighs

By Jan Harvey and Carole Vaporean

LONDON/NEW YORK (Reuters) - Gold prices slipped along with oil on Monday in response to a rising dollar, but the yellow metal later trimmed those declines when the U.S. currency erased its gains on the euro, traders said.

The dollar retreated when U.S. equity markets extended their losses, amid falling energy shares and renewed credit market concerns, dollar traders said.

Gold pulled off early lows to $925.20/926.80 an ounce by 4:00 p.m. EDT though was still lower than $932.00/933.00 an ounce in London on Friday, when U.S. markets were closed for Independence Day holiday.

Earlier, it touched a session low of $914.50 an ounce, nearly 2 percent below the level it traded at on Friday.

"The euro is a bit weaker, the dollar is stronger and oil is slipping a bit," said Commerzbank analyst Eugen Weinberg.

"There has been a strong negative correlation between the gold price and the equity markets. Risk aversion has led to an inflow into gold, so higher equity markets could see a lower gold price."

A falling dollar typically aides gold, which is bought as an alternative investment to the U.S. currency. A weaker greenback also makes dollar-priced commodities such as precious metals less expensive for holders of other currencies.

In New York, the August gold contract finished $4.80 lower at $928.80 an ounce on the COMEX division of New York Mercantile Exchange after falling as low as $916.30.

"The dollar's firmness capped gold and silver's rally for the short term. With today's price action, as long as gold can hold above $916 (an ounce) we should continue to consolidate last week's spike higher to build for a rally," said HeritageWestFutures.com futures analyst Ralph Preston.

OIL SLIPS

Lower oil prices kept downward pressure on gold, which is often bought as a hedge against oil-led inflation.

Crude fell over $4 a barrel on profit taking and signs that Iran will be more flexible in negotiations over its nuclear program.

However, in the longer run near-record crude prices are seen as a major supportive factor for the precious metal.

"Oil prices at these levels should anchor precious metal investment demand as investors seek portfolio protection against rising global inflation expectations," said Standard Bank analyst Manqoba Madinane in a note.

In fundamental news, London-based ETF Securities said the amount of gold it holds to back its Physical Gold exchange-traded fund has risen 15 percent in the last week to a record 1.459 million ounces.