Gold holds above $900 on oil but caution prevails

By Lewa Pardomuan

LONDON (Reuters) - Gold inched up and held above $900 on Tuesday, on inflation fears driven by record-high oil prices, but investors were cautious after a drop in global quarterly demand for the precious metal.

Demand for gold for jewellery, investment and other uses, fell 16 percent compared with a year ago to 701 tonnes in the first quarter of 2008 -- the lowest quarterly figure in five years -- as bullion hit a record above $1,000 an ounce, the World Gold Council said in a report.

Spot gold <XAU=> edged up to $906.65/907.65 an ounce from $905.00/906.40 late in New York on Monday, when it hit an intraday high of $913.35 an ounce, its loftiest level since April 23.

"I suspect if it fails to break through that sort of $914-$915 barrier, we may well be looking at it below $900 again very shortly," said Darren Heathcote of Investec Australia in Sydney.

"I think some funds have decided that it's better to take some profit off the table and there's a wait-and-see attitude."

Global jewellery demand fell 21 percent year-on-year to 445.4 tonnes, the lowest quarterly level since the early 1990s, while net retail investment demand dropped 35 percent to 72.7 tonnes, according to the WGC.

Gold has lost more than 12 percent in value since spiking to a record high of $1,030.80 an ounce on March 17, on profit taking and a recovery in the U.S. dollar against other currencies.

But expensive crude oil, which raises fears of inflation, is likely to offer support.