Gold cuts loss as dollar slips, oil weighs

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.

The rise reflected gains across its physically backed precious metals ETFs, with its platinum and palladium holdings also rising to new records and silver ticking up 1 percent.

However, jewelry buying remains lackluster as prices remain high and volatile, analysts said.

Turkey's gold imports were down 27.5 percent year-on-year in the first half of 2008. The country was the fifth largest gold jewelry buying area last year, according to the World Gold Council.

Platinum group metals prices also slid, with platinum shedding 1.5 percent to a one-month low and palladium just under 1 percent weaker, as investors took profits after the metals' recent gains, amid fears demand may slacken.

Platinum is chiefly used to make autocatalysts. Investors fear that falling car sales could hit PGM consumption, as the U.S. economy falters.

Spot platinum was trading at $1,963.00/1,983.00, its weakest level since June 5, down from $1,999.00/2,019.00 in London on Friday.

Platinum has lost 13 percent in value since hitting a record of $2,290 in March. The metal, also used in jewelry, had rallied after a power crisis in main producer South Africa disrupted mining and sparked fears of a supply deficit.

Spot palladium slipped to $442.50/450.50 an ounce from $450.00/455.00 an ounce, while silver dropped to $17.57/17.62 an ounce from $18.02/18.12 late in London -- well below an 11-week high of $18.46 hit last week.

(Editing by Christian Wiessner)