* China CPI weaker than expected; tightening fears subdued
* Coming up: U.S. Jan retail sales; 1330 GMT
By Amanda Cooper
LONDON, Feb 15 Gold was set for its largest
one-day rise in a week, aided by a weaker dollar and Chinese
inflation data that soothed some concern over the prospect of
rapid rate rises in the world's second-largest bullion consumer.
Rising inflation particularly in emerging markets could
encourage demand for gold, which can help investors insulate
their portfolios against growing price pressures.
Spot gold XAU= rose 0.8 percent to $1,372.10 an ounce by
1213 GMT. The price has risen by about 5 percent since hitting
three-month lows in late January. U.S. gold futures GCJ1 were
up 0.6 percent at $1,373.60 an ounce.
"What we're likely to see this year in terms of investment
drivers for gold being the degree of rotation in Europe and the
U.S. and the more developed markets that use ETFs as a physical
vehicle ... being offset by sustained physical investment in
Asia and concern over inflation is mounting," said RBS analyst
"There is going to be that driver for sustained coin and bar
investment in 2011 that is likely to support the market."
ETF Securities, a provider of exchange-traded funds backed
by physical metal, and asset manager BlackRock (BLK.N) estimate
investors pulled just over $2 billion from commodity
exchange-traded products in January. [ID:nLDE71D1LI]
Chinese inflation was lower than expected at 4.9 percent in
the year to January, but price pressures continued to build and
will force the central bank to stick to its course of monetary
tightening. The number was in line with market talk in the past
few days of a weaker number. [ID:nTOE71E01Y]
EURO CONCERN PERSISTS
Middle Eastern and Asian buying helped the euro recover from
three-week lows against the dollar, but it was undermined by
scepticism over the ability of European leaders to offer a quick
and effective solution to the euro zone's debt problems. [FRX/]
A stronger dollar usually erodes demand for gold, yet that
traditional inverse link has broken down in the last month,
pushing the correlation between the two to its most positive in
nearly six months.
For a chart of the gold/dollar index correlation, click on
this link: link.reuters.com/jup97r
Investors continued to watch developments of widespread
unrest in Middle Eastern and north African nations. Political
turmoil may drive investors to seek safe-haven assets such as
Although investor demand in Asia is expected to remain firm
this year, trading in the physical market was light this week,
following the Lunar New Year holidays.
"Over the long (Lunar New Year) holiday, inventories have
built up from the shipments that arrived," said a Hong
He added that the gold premium in Hong Kong had narrowed to
below $2 an ounce over London prices, from over $3 before the
holiday when supply was tight and buying interest running high.
"People have no intention to buy now, but I think next week
activities will pick up."
The slower pace of inflation in China triggered some demand
for industrial commodities, helping to push up the prices of
platinum and palladium.
"The international PGM market has come to expect a lot from
China. Without Chinese purchases, both platinum and palladium
would be trading at considerably lower levels," said UBS
precious metals strategist Edel Tully.
"Over the coming months platinum has the potential to
appreciate faster than palladium if China's passenger car sales
soften on a monthly basis as we expect, while the investor
market for platinum grows."
Platinum XPT= was last up 0.5 percent at $1,835.24 an
ounce, while palladium XPD= was up 0.2 percent at $833.50,
nearing a fresh 11-year high.
(Additional reporting by Rujun Shen in Singapore, editing by