Gold turns to end lower as oil retreats, Gustav eyed

NEW YORK/LONDON (Reuters) - Gold ended slightly lower on Friday, erasing gains after an initial oil rally on storm fears gave way to profit-taking, but strong jewelry demand should support prices.

Spot gold was at $830.35/832.35 by New York’s last quote at 2:15 p.m. (1815 GMT), down from $831.45/832.65 late in New York on Thursday, when it rose as high as $838.30 an ounce, nearing $844, its highest level since August 11.

The U.S. dollar rallied against a currency basket, on track for its best monthly gain in nearly 16 years, boosted by a batch of data showing a far more stable economic growth path for the United States than the rest of the world.

Meanwhile, oil retreated and ended nearly unchanged in spite of an initial rally as Hurricane Gustav was poised to enter the Gulf of Mexico, raising concerns about its impact on U.S. offshore oil and gas output

“We still see incredibly strong investment and jewellery demand,” said analyst John Reade at UBS Investment Bank. “The market has been tracking euro/dollar.”

In addition, UBS told clients in a note that gold could rally back up towards $900 an ounce in the coming months, as a fall from its all-time high has boosted physical demand to its highest level in 20 years.

U.S. gold futures for December delivery settled down $2.00 at $835.20 an ounce on the COMEX division of the New York Mercantile Exchange.

Futures trading was quiet ahead of the U.S. Labor Day holiday on Monday.

Gold has bounced as much as 9 percent since tumbling to nine-month lows around $773 two weeks ago, on high oil prices and demand from jewelers in Asia and other parts of the world. But gold is well below its record of $1,030.80 hit in March.


With gold prices trading 20 percent below an all-time high, physical demand was seen supporting the market.

“I’ve noticed that Indian housewives are far better forecasters of the gold price than most of us paid to do the job -- and today Indian housewives are buying the yellow metal,” said Jeffrey Nichols of American Precious Metals Advisors.

“Fortuitously, physical demand has picked up sharply in the past month, particularly among retail investors. We’ve seen this in India where jewellery demand has picked up early in response to low prices ahead of the coming festival season.”

Spot platinum ended higher at $1,475.50/1,495.50 an ounce from $1,469.00/1,489.00 late in New York on Thursday.

Platinum, which plummeted to 11-month lows around $1,296 last week, has suffered from expectations car demand will slow as the global economy falters, cutting demand for autocatalysts.

Spot palladium rose to $302.00/310.00 an ounce from its previous U.S. finish of $289.00/297.00 an ounce. Silver slipped to $13.55/13.65 an ounce from $13.64/13.70 late in New York on Thursday.

Additional reporting by Humeyra Pamuk in London and Lewa Pardomuan in Singapore; Editing by Walter Bagley