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Gold dips on weaker oil, awaits G7 on dollar

Gold dipped on Friday, giving up early gains, as oil extended losses and investors waited to see how the dollar would respond to a meeting by the Group of Seven finance chiefs later in the day.

In the physical sector, dealers noted light selling from Indonesia as jewelers cashed in on gold's recent gains. Platinum and silver fell from Thursday's highs, while palladium matched a three-week high.

Gold fell to $922.60/923.50 an ounce from $925.90/926.70 late in New York. Gold jumped to its highest since March 31 at $939.40 on Thursday before retreating as oil slipped from record highs and the dollar rebounded.

Gold struck a record of $1,030.80 on March 17 but has since struggled to sustain the uptrend, with a broad commodities pullback dragging the price down.

But as fears of inflation linger, gold's appeal as a hedge has risen, while expectations of further rate cuts in the United States also make it an attractive choice for investors seeking an alternative investment, said analysts.

“The basic tone is very strong,” said Yukuji Sonoda, precious metals analyst at Daiichi Commodities in Tokyo. He said trade on Friday was muted as investors were waiting for the outcome of the G7 meeting.

“I personally think gold will go up again to $1,000. Within six months, $1,100 is possible.”

Gold futures for June delivery GCM8 on the COMEX division of the New York Mercantile Exchange fell $5.4 an ounce to $926.4 an ounce.

Metals consultancy GFMS Ltd said this week the factors supporting prices over the last few months, such as the credit market crisis, would remain in place and investors would continue to look at bullion for strong returns.

The euro firmed to $1.5782 from around $1.5745 in late US trading on Thursday, but well off a record peak of $1.5915 hit on electronic trading platform EBS on Thursday.

Oil dipped below $110 a barrel after Saudia Arabia's comments the markets were well-supplied encouraged investors to reduce positions. It hit a record high of $112.21 on Wednesday.

Bullion dealers in Tokyo saw buying interest from the electronic sector but the purchases were not strong enough to lift gold bars, which were offered at a discount of 25 US cents an ounce, unchanged from last week.

Premiums for gold bars were steady around 60 US cents an ounce to the spot London prices in Singapore, a centre for bullion trading in Southeast Asia.

“Indonesia is selling scrap but the amount is very low. Vietnam is nowhere to be seen after selling aggressively because of higher prices,” said a dealer in Singapore.

“Overall trading is very slow. I guess many people were caught off guard when the price jumped to around $930 after falling in reaction to the IMF news.”

The International Monetary Fund, the world's third-largest holder of gold with 3,217.3 tons in stocks, said on Monday it wanted to sell 403.3 tons and use the profits to invest in government and corporate bonds, and possibly equities. (Reuters)