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Gold firmer but off highs as equities rise

LONDON - Gold retreated from highs hit earlier in the session on Tuesday as equity markets rallied and the dollar edged off lows against the euro.

Other precious metals remained strong, with platinum climbing more than six percent and silver four percent to session highs, supported by a broad-based commodities rally.

Spot gold was quoted at $835.10/838.10 by 1345 GMT, against $830.80 in late New York trade on Monday. Earlier it jumped 2 percent to a session high of $853.50 an ounce.

Financial markets surged after news that the United States could pump $250 billion into U.S. banks in what Federal Reserve chairman Ben Bernanke called a comprehensive attempt to end the credit crisis.

U.S. stocks climbed at the open, tracking earlier gains in Europe and Asia.

Mark O'Byrne, director of Gold & Silver Investments in Dublin, said uncertainty in equities made gold's near-term direction hard to call, but "traditionally, when you see the Dow Jones and the FTSE do well, people sell gold".

The dollar added to pressure on bullion as it recovered from earlier lows against the euro.

"We still believe that the main driver of gold is going to be the U.S. dollar," said Standard Bank analyst Walter de Wet. "If sentiment improves and the U.S. dollar appreciates, gold should move lower."

Firmer crude prices are underpinning gold, however.

Oil surged more than $2 a barrel, extending the previous session's 4 percent gains, as government moves to rescue banks fuelled hopes a global recession may be averted.

Rising crude prices boost interest in gold as a hedge against oil-led inflation, and enhance the appeal of commodities as an asset class.

Equities recover

Overall weakness in the dollar, the recovery in equities and fresh optimism over the economic outlook sparked buying of commodities in earlier trade, with oil and industrial metals all trading higher after heavy losses last week.

The Reuters-Jefferies CRB index rose 3 percent to 298.70 on Monday, after scoring its lowest since January 2007 last week.

Demand for gold is firm, with investors buying into coins and bars and interest in gold-backed exchange-traded funds near record levels. However, firmer equities may limit gold's rise.

"Even though we see potential for more gains, it is probably limited while the equity markets remain in such a buoyant mood, which could be the case for some more days," said Commerzbank analysts in a note.

Among other precious metals, silver tracked gold higher to rise 4 percent at its session high of $11.10 an ounce. Silver, which is primarily viewed as an industrial metal, is also benefiting from hopes more stable markets could support demand.

Spot silver was at $10.79/10.87 an ounce against $10.66 in late New York trade on Monday.

Platinum and palladium, which are also largely traded as industrial metals, climbed, with platinum gaining more than 6 percent to its session high of $1,040 an ounce.

Both metals have posted sharp losses in recent months as investors worried about the demand outlook for the car industry, which accounts for around half of total platinum demand. This could curb further gains, analysts say.

Spot platinum was at $1,019/1,039 an ounce, up from $978.50 in late New York trade on Monday, while palladium was at $198.50/206.50 an ounce against $196.50.