Gold steadies after slip, underpinned by oil, dollar

Mon Jul 28, 2008 9:29am EDT

By Jan Harvey

LONDON (Reuters) - Gold was steady in Europe on Monday as firmer oil and a weaker dollar underpinned prices, with trading light ahead of key economic data due later this week.

The precious metal is expected to remain rangebound as the market takes a breather after Friday's volatile session, with traders eyeing an initial target of $935 an ounce.

Gold was trading at $927.40/929.40 at 9:12 a.m. EDT, unchanged from its level late in New York on Friday, when it moved in a volatile $16 range.

UBS analyst John Reade said light summer liquidity conditions were partly to blame for Monday's directionless trade.

"We have non-farm payrolls this week, which is always the biggest event in the forex market," he added. "People tend not to trade too much ahead of that."

Oil prices meanwhile are underpinning gold. Crude bounced back after its $20-a-barrel slide of the last two weeks, boosting interest in gold as an inflation hedge, and in commodities as an asset class.

Crude futures rose above $124 a barrel on Monday as fresh attacks on oil installations in major producer Nigeria fuelled fears over the outlook for supply.

The dollar also weakened a touch against the euro, adding to the appeal of gold as an alternative investment, as investors concluded the U.S. economic climate remains poor.

Investor interest in the metal has steadied.

Holdings of the world's largest gold-backed exchange-traded fund, the SPDR Gold Trust GLD, were unchanged on Monday at 673.4 tonnes. The amount of gold held to back ETF Securities' Physical Gold ETC PHAU.L rose 1 percent week-on-week.

PLATINUM STEADY

Among other precious metals, platinum steadied after a second week of decline.

The metal has been pressured by fears over weakening demand as the U.S. and global economic outlook darkened and amid speculation over the financial health of carmakers in the U.S. and Japan.

Platinum is widely used by the car industry in autocatalysts and any sign of a slowdown in the automotive sector could hit demand for the metal hard.

Supply fears linked to a power shortage in South Africa also eased after the country's state power utility Eskom said it sees no further powercuts this year.

The world's top platinum producer AngloPlatinum said on Monday it will meet its annual production target of 2.40 million ounces -- against 2.47 million last year -- and expects output to increase significantly in the second half.

Investment bank JP Morgan on Monday cut its 2008 price target for platinum to $1,885 an ounce from $2,156, and for 2009 to $1,650 from $1,981, citing worsening economic conditions.

Michael Jansen, an analyst at the bank, said in a note that it appears South Africa's major mining companies are "now coping quite successfully with the power situation".

Spot platinum was little changed at $1,746.00/1,766.00 against $1,745.00/1,765.00 late in New York.

Spot palladium rose to $388.50/396.50 an ounce from $380.50/388.50 late in New York.

Jansen added however that "palladium demand is weaker than platinum demand due to the downsizing taking place in term of new vehicle purchases in the U.S. right now".

"Hence, while we are short term bearish platinum - looking for a move down towards $1,500 over the next 9 months - the outlook for palladium is not a great deal better," he added.

Silver was steady at $17.34/17.41 an ounce from $17.35/17.43 late in New York.

(Reporting by Jan Harvey; Editing by Michael Roddy)