Gold edges up in choppy trade as dollar dips

By Jan Harvey and Kylie MacLellan

LONDON (Reuters) - Gold edged higher in choppy trade on Wednesday as the dollar slipped in the wake of lower-than-expected U.S. inflation data for May, which boosted expectations interest rates may stay low.

Spot gold was bid at $935.40 an ounce at 11:34 a.m. EDT, against $934.10 an ounce late in New York on Tuesday. U.S. gold futures for June delivery on the COMEX division of the New York Mercantile Exchange rose 10 cents to $931.70 an ounce.

U.S. equities declined on Wednesday after European shares slipped to three-week lows, as investors grew skeptical about the speed of the global economic recovery.

Fairfax analyst Marc Elliott said while rising risk aversion was turning investors away from equities toward safer assets such as gold, it was also boosting the dollar, and "if the dollar gets stronger, that is not so good for gold."

The U.S. government's consumer price index, its broadest inflation gauge, rose 0.1 percent last month, against expectations for a 0.3 percent increase.

The dollar fell after the CPI data. Its weakness boosts interest in gold as an alternative asset, and makes all dollar-priced commodities cheaper for holders of other currencies.

The soft U.S. CPI reading may suggest that traders who bought gold as a hedge against the prospect of future inflation may have got ahead of themselves. Bullion is often bought as a hedge against rising prices.

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