Gold rose in Europe on Tuesday as the dollar broadly weakened and an upturn in oil prices boosted bullion's appeal as a hedge against potential oil-induced inflation. The dollar slipped against a basket of currencies after Russia said the world needed new reserve currencies, while the euro extended gains after a strong reading of German economic sentiment.
Oil rose above $72 a barrel as the dollar slid and US housing data showed a jump in new construction starts and permits. Gold prices often track those of crude, as the metal can be bought as a hedge against inflationary pressures sparked by higher oil prices. Spot gold was bid at $935.10 an ounce at 1429 GMT, against $927.85 an ounce late in New York on Monday.
"The dollar has been the key thing," said Standard Chartered analyst Dan Smith. "The correlation with the dollar has stepped up quite a bit in the last few weeks." Gold has slipped sharply from the three-month high of $989.80 it hit earlier this month, as a dollar rally dampened investors' interest in gold and made dollar-priced commodities more expensive for holders of other currencies.
VTB Capital analyst Andrey Kryuchenkov said gold's drop alongside falling global equities markets on Monday could mean the precious metal's attractiveness as a hedge against market risks had diminished dramatically. "It is now clear that the buying momentum in gold could only have a significant recovery on the back of rising inflation expectations and a tumbling dollar," he said in a note.
Among other precious metals, silver rose to $14.17 an ounce against $14.05. Platinum was at $1,224.00 an ounce against $1,204, while palladium was at $243.00 against $240.50. Both are, like gold, tracking the dollar and overall interest in commodities. Interest in platinum exchange-traded funds - which issue securities backed by metal - remains firm, with the ETFS Physical Platinum fund up another 3,000 ounces or nearly 1 percent on Monday.
"(Platinum) should find further support ahead of $1200 from bargain hunters, as reflected by the increase in ETF holdings," said James Moore, an analyst at TheBullionDesk.com. The metals remain pressured, however, by fears over the outlook for carmakers, their main buyers. New car registrations in Europe fell for a 13th month in May as companies struggled to make sales without government incentives.
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