July 21, 2009 / 12:37 AM / 10 years ago

Gold pares gains as dollar steadies vs euro

LONDON (Reuters) - Gold steadied on Tuesday, drifting off highs, as the dollar pared losses versus the euro after Federal Reserve chair Ben Bernanke gave policymakers a marginally less upbeat than expected view on the U.S. economy.

Oil prices lent support to gold, climbing nearly $1 a barrel after world equities’ rise to a 2009 high boosted hopes for an economic recovery. Rising crude prices can fuel demand for gold as a hedge against oil-led inflation.

Spot gold was bid at $948.90 an ounce at 1446 GMT against $948.35 an ounce late in New York on Monday, having earlier touched a session high of $953.40.

U.S. gold futures for August delivery on the COMEX division of the New York Mercantile Exchange rose 50 cents to $949.30 an ounce.

“The most noticeable change for gold has been the stronger correlation with the dollar,” said Standard Chartered analyst Daniel Smith. “We went through a stage when the correlation was negative and now it’s pretty strongly positive.”

The dollar pared losses against the euro after Bernanke, in his testimony to the House of Representatives, said job losses remain high and the Fed’s accommodative monetary policy could stay for an extended period.

The testimony curbed risk appetite, diverting interest from currencies seen as higher risk. Gold is often bought as an alternative asset to the dollar and tends to move in the opposite direction to the U.S. currency.

On the wider markets, world stocks hit nine-month highs as traders anticipated more good news from corporate earnings reports.

INFLATION FEARS

A firmer tone to stocks and rising oil prices fueled fears over the prospect of inflation further down the line, which may prompt fresh buying of gold.

French bank Calyon forecast gold prices to average $935 an ounce this year, rising to $975 in 2010 and $1,025 in 2011, with the price rise driven by dollar weakness and sharp gains in inflation.

“The two primary drivers we see pushing gold higher are a weaker dollar... and massive injections by central banks of liquidity to support economic growth,” said Calyon metals analyst Robin Bhar.

“This unconventional monetary policy is inflationary.”

With physical demand for gold from both jewelers and investors still sluggish over the seasonally weak summer months, traders awaited fresh direction from the currency markets.

Gold prices in India, the world’s largest bullion market, were flat as dealers awaited lower prices. On the investment side, holdings of the largest gold ETF, the SPDR Gold Trust, were unchanged on Monday.

“When we get toward the end of August and September, we will see physical demand picking up ahead of Diwali and the wedding season,” said Barclays Capital analyst Suki Cooper.

Silver was flat at $13.62 an ounce, platinum was at $1,179.50 an ounce against $1,180, and palladium was at $253 an ounce from $252.

South African miner Impala Platinum said a shaft at its Rustenberg mine will remain shut while an investigation into an accident is carried out. All nine employees trapped by a rock fall at the mine on Monday were killed, it said.

Traders are awaiting the outcome of a dispute between South Africa’s National Union of Mineworkers and mining companies over wages. Final talks are taking place on Tuesday.

Additional reporting by Pratima Desai; editing by James Jukwey

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