Gold bounces from 11-month lows, tracks oil

By Lewa Pardomuan

SINGAPORE (Reuters) - Gold advanced on Wednesday after a rebound in oil prices, which helped the metal resist selling pressure from speculators who had sent prices to their lowest in nearly a year.

Platinum tumbled to its weakest since March last year, with fears of falling demand for autocatalysts adding to the selling pressure. Silver was at its lowest level in nearly two years and palladium at its weakest since November 2005.

Spot gold rose to $778.70/779.90 an ounce, up 0.4 percent from $775.80/777.80 in late New York and was off an intraday low of $762.55 an ounce, its weakest since late October 2007.

Physical buying from jewellers also helped pluck gold from the lows, but dealers said sentiment had turned bearish after gold's failure to hold above the psychological level of $800.

"For gold to turn around, we will require a change of sentiment in the trading environment. Gold is expected to trade between $750 and $820 in the short term," said William Kwan, bullion director at Gold Capital Management in Singapore.

Oil rebounded from a five-month low after OPEC agreed to a small but unexpected production cut that some analysts said showed their resolve to keep prices above $100 a barrel.

"I think we are seeing some market switching. This is very much a currency, oil play. I think $740 looks like a key level," said Mark Pervan, an ANZ senior commodity analyst in Melbourne.

"I think if it goes through $760, I think it could move to $740 very quickly and then there's no reason why it wouldn't test $700 an ounce within four or five weeks if we continue to see the strengthening of the dollar," he said.

Bullion last traded around $700 in September last year. Gold has dropped more than 20 percent since hitting a four-month high of $987.75 an ounce in mid-July and hovered well below a lifetime high of $1,030.80 hit in March 2008.

The yen trimmed earlier losses against the dollar and euro on after Korea Development Bank confirmed talks had ended for now with Lehman Brothers (LEH.N: Quote, Profile, Research, Stock Buzz) over a possible investment.

Gold tracks oil because of its role as a hedge against inflation, while currencies also dictate movements in bullion because investors buy the metal as an alternative investment.

In the physical market, premiums for premiums for gold bars have jumped as much as 33 percent in the past week after a drop in bullion prices spurred buying from jewellers across Asia, forcing dealers to scramble for supplies.

"Generally it is seen that physical demand does not cause a spike in prices but rather acts as a floor to prevent prices from sliding," said Pradeep Unni, senior research analyst at Richcomm Global Services DMCC in Dubai.

The benchmark contract for August 2009 delivery on the Tokyo Commodity Exchange fell 258 yen per gram to 4,186 yen, having tumbled by the 300 yen daily limit to 4,144 yen per gram, its lowest since December 2006.

Tokyo futures and cash platinum have been hit by heavy selling as slowing global economy and poor car sales in the U.S., China and Japan sparked fears of falling demand for autocalysts.

Autocatalysts, used to clean exhaust fumes, account for more than 50 percent of global demand.

(Editing by Ben Tan)