Gold dips on dollar, bargain hunters resurface

SINGAPORE (Reuters) - Gold prices recoiled on Thursday as some investors ditched the precious metal after the dollar held onto gains against other currencies and oil dropped on rising inventories in the United States.

Gold dipped to $876.45/877.45 an ounce from $878.30/879.70 an ounce late in New York on Wednesday -- within sight of a two-week low of $870 hit on May 30.

"I would expect the U.S. dollar to have some strong support in the near term. The market will try to test the bottom of around $860," said Louis Lok, a dealer at Bank of China in Hong Kong.

The dollar held onto gains against the euro and the yen after Federal Reserve chief Ben Bernanke emphasized inflation concerns, yet another sign the central bank is likely done cutting rates.

Front-month U.S. crude for July delivery was down 45 cents at $121.85 a barrel.

But lower gold prices attracted buying from jewelry makers and other bargain hunters, although trading was slow ahead of Friday's U.S. non-farm payrolls data which may set the direction for the dollar and gold.

"If there's any adverse result from the non-farm payrolls data, the stock market may come off and there might be some inflows of buying interest back to safe haven," William Kwan, bullion director of Gold Capital Management.

Gold powered to a record high of $1,030.80 an ounce in mid-March on expectations of more rate cuts in the United States which lifted its appeal as an alternative investment and record high oil prices that raised fears of inflation.

Prices have since corrected as investors booked profits.

"When everyone has exited the market and the price is at the lower range, what will they do next? asked Kwan.

"They will come back, especially when the fundamental is still quite well intact for precious metals and there's expectation the U.S. is technically in a recession. People will come back," said Kwan, who pegged support at $870 an ounce.

Gold futures for June delivery on the COMEX division of the New York Mercantile Exchange fell $4.0 an ounce to $879.8 an ounce.

The most active Tokyo platinum contract for April 2009 delivery on the Tokyo Commodity Exchange ended the morning session 25 yen per gram lower at 6,586 yen per gram.

Spot platinum fell to $1,978.50/1,998.50 an ounce from $1,985/2,005 an ounce.

Silver edged down to $16.73/16.81 an ounce from $16.81/16.87 an ounce. Spot palladium rose to $427.00/432.00 an ounce, from $425.00/433.00 an ounce.

TOCOM prices in yen per gram, except TOCOM silver which is priced in yen per 10 grams. Spot prices in $ per ounce.

(Editing by Louise Heavens)