August 14, 2009 / 10:23 AM / 10 years ago

PRECIOUS-Gold turns lower as dollar recovers, oil falls

* Commodities, equities edge lower as U.S. data disappoints

* U.S. inflation data flat in July, consumer confidence down

* Silver hits 2-month high at $15.16 an ounce

(Adds comment, updates prices, details)

By Martina Fuchs

LONDON, Aug 14 (Reuters) - Gold turned lower in Europe on Friday as the dollar recovered losses versus a basket of currencies and as weak U.S. consumer confidence data for July knocked oil and equity markets lower.

Spot gold XAU= was bid at $951.45 an ounce at 1457 GMT, against $953.50 an ounce late in New York on Thursday. U.S. gold futures for December delivery GCZ9 on the COMEX division of the New York Mercantile Exchange fell $2.90 to $953.40.

“Industrial production in the U.S. disappointed, and the U.S. stock markets are deep in the red. This is a bit negative, and the falling stock markets have dragged gold lower,” Peter Fertig, a consultant at Quantitative Commodity Research, said.

“This indicates that the economy is not recovering as quickly as some have thought,” he added. “Investors have increased their risk aversion (due to) the correction in the stock market, and this is having an impact on the U.S. dollar.”

The dollar .DXY rose against a currency basket after U.S. data sparked fears over the scope of a U.S. recovery, with risk-averse investors buying the U.S. unit as a haven. [FRX/]

Gold typically moves in a close inverse relationship with the U.S. currency, as it becomes cheaper for holders of other currencies as the dollar weakens.

A survey by the University of Michigan showed U.S. consumer confidence fell in early August as a growing number of Americans fretted about the broader economy to improve. [ID:nN14292618]

Crude prices were knocked more than 2 percent lower by the data, while equities fell, as optimism over recovery prospects was deflated. Gold often mirrors moves in commodities bellwether oil. [O/R] [.EU] [.N]

INFLATION FEARS

Earlier a government report showed U.S. consumer prices were unchanged in July over June but fell over the past 12 months by the most since 1950.

Gold is particularly sensitive to inflation data, as it is also often bought as a hedge against rising consumer prices. Standard Bank analyst Walter de Wet said the data showed little inflationary pressure in the market.

“From an immediate perspective, there is little pressure on gold price,” he said. “The longer term expectations are still in the market that inflation could rise, but clearly not in the next couple of months.”

On the demand side, the world’s largest gold-backed exchange-traded fund, New York’s SPDR Gold Trust (GLD), was flat at 1,065.49 tonnes on Thursday, having seen an outflow of 29 tonnes in the last four weeks. [GOL/SPDR]

Among other precious metals, silver XAG= was lifted to a two-month high of $15.16 due to the rise in gold prices and a sharp rally in copper in Asia overnight. [ID:nLE349012]

It was later bid at $14.68 an ounce against $15.00.

Analysts said silver is benefiting from hopes the economic downturn may be bottoming out, lifting industrial demand for the metal. A fall in the gold-silver price ratio to 63 from 72 a month ago suggests silver is now good value compared to gold.

“If base metals are set to move sharply higher, silver, with its high proportion of industrial demand, could benefit too,” UBS analyst John Reade said in a note.

“But...we are wary of the moves seen in many base metals, as we are not expecting a strong V shaped economic recovery and investors appear to have become too enthusiastic about the commodity story,” he added.

Among other precious metals, platinum XPT= was at $1,255 an ounce against $1,265, while palladium XPD= was at $274.50 against $274. (Editing by Anthony Barker)

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