* Investors opting for U.S. Treasuries over gold
* Receding inflation fears weigh on sentiment
* Investor selling could accelerate if gold falls below $700
By Pratima Desai
LONDON, Nov 13 Gold rose on Thursday as bargain
hunters entered the fray, but analysts said gains will be capped
by the stronger dollar and receding inflation fears.
Spot gold XAU= was at $718.90/720.90 an ounce at 1541 GMT
from $711.35 an ounce in New York late on Wednesday, when it
slipped to $707.80, its weakest since October 27. Earlier it
briefly touched $725 an ounce.
The dollar retreated against the euro, but it is still up
more than 20 percent since hitting a record high above $1.60 in
"Gold will struggle in an environment where the dollar is
strengthening," said Calyon analyst Robin Bhar.
"Safe-haven buying will continue to underpin the gold price,
but it looks as if people are more inclined to move into U.S.
Treasury bonds and bills."
Any move by investors into U.S. government bonds will boost
the U.S. currency, which, when it is rising, makes metals priced
in dollars more expensive for holders of other currencies.
The dollar has been rising since August when markets
realised the financial crisis and economic slowdown would not be
confined to the United States.
"We are revising our gold forecasts lower on Goldman Sachs
currency revisions as USD shifts are the dominant driver of gold
prices," Goldman Sachs said in a note. [ID:nN12464746]
Gold prices have tumbled by about 30 percent since hitting a
record high of $1,030.80 an ounce in March.
"Should gold break through $700 an ounce we are concerned
that the metal could continue to fall as ... investors may
liquidate into an already weakening market," investment bank
Fairfax said in a note.
RECEDING INFLATION FEARS
Gold is also used by investors as a hedge against financial
market turmoil and inflation, which erodes the value of money.
Worries about global recession, consumer belt-tightening and
falling oil and industrial metals prices have all contributed to
easing inflationary pressures and in fact markets are now
talking about the likelihood of deflation. [COM/WRAP]
"Inflation is no longer in the equation for the global
economy. People don't need to be protected from it," a
London-based trader said.
Gold gained earlier this year as the credit market crunch
stoked volatility across financial markets. But coordinated
central bank action to pump money into the banking system and
cut interest rates is helping to ease the crisis.
"Credit market developments continue to weigh on gold
prices, we believe, although the evidence is not clear cut,"
HSBC said in a note.
"An important argument for higher gold prices is strong
underlying physical demand for gold globally, most notably in
India, the Middle East, and China."
Chinese gold investment hit 38.4 tonnes in the first nine
months of this year against 24 tonnes for 2007. [ID:nPEK182184]
Platinum XPT= fell nearly 4 percent to $780 an ounce, the
lowest since Oct. 31 and was last at $820/840 an ounce from $810
late on Wednesday.
Prices of the metal used to make autocatalysts have plunged
about 65 percent since a record high of $2,290 hit in March.
The sell-off was trigged by collapsing auto sales and the
deteriorating outlook for the car industry.
"There could be fresh falls in platinum prices next year, it
would not be unexpected," Bhar said.
Palladium XPD= was at $212/220 from $210 on Wednesday and
silver XAG= at $9.19/9.27 from $9.30.
(Reporting by Pratima Desai; editing by Karen Foster)