Gold turns lower as dollar rise, deleveraging weigh

By Frank Tang and Pratima Desai

NEW YORK/LONDON (Reuters) - Gold ended lower after a mixed session on Monday, as a stronger dollar and sharp decline of the stock markets prompted investors to lessen leveraged positions across all asset classes.

Spot gold was at $915.95 an ounce at 4:13 p.m. EDT, down 0.7 percent from its last quote $922.10 in New York late Friday. The precious metal fell 3 percent last week, but has held above $900 on buying by gold-backed exchange traded funds.

U.S. gold futures for June delivery settled down $7.60 at $917.70 an ounce on the COMEX division of the New York Mercantile Exchange.

Investors use gold as a hedge against financial uncertainty and inflation, while a higher U.S. currency makes gold priced in dollars more expensive for holders of other currencies.

"Tendencies on equity markets and the dollar will be the dominant factors for oil and gold this week," said Barbara Lambrecht, analyst at Commerzbank.

The dollar extended gains against the euro as worries about the financial and U.S. auto sectors unnerved investors, prompting them to take refuge in the relative safety of the U.S. currency.

Euro sentiment suffered a blow last week after Germany's Finance Minister Peer Steinbrueck said budget irresponsibility in Europe would damage credibility.

"It's the strong dollar. We've gone back to that inverse relationship that had disappeared between the dollar and gold," Stephen Briggs, a commodities strategist at RBS Global Banking & Markets, said.

Gold initially firmed on Monday as investors spooked by fresh turmoil in equity markets turned to the precious metal.

Wall Street tumbled as the Obama administration raised the specter of bankruptcy for Chrysler and General Motors GM.N and Spain had to rescue a regional savings bank. Dow average ended down more than 250 points.

Markets are looking ahead to the April 2 summit of the world's 20 biggest economies to discuss regulation and spending to help end the worst recession since the 1930s.

VOLATILE QUARTER

A boost for gold was news that investors are still buying the metal. The world's largest gold-backed exchange-traded fund, the SPDR Gold Trust, said holdings rose 2.45 tonnes to a record 1,127.44 tonnes on March 29.

"With this strong investment demand..., at some point gold will come up," Briggs added.

Gold rose to an 11-month high above $1,000 an ounce on February 20 as worries about the banking crisis escalated and slipped to $882.90 on March 20 on profit-taking as the dollar rose and equity markets calmed.