Gold firm amid record oil but caution reigns

London: Gold drifted higher on Monday as oil roared to a record high near $120 a barrel but investors remained cautious ahead of this week's meeting of the US Federal Reserve on interest rates.

Bullion rose as high as $894.25 an ounce and was quoted at $890.40/$891.10 at 1408 GMT, against $886.90/$888.30 in New York late on Friday.

Gold was supported by strong oil prices, but analysts said bullion's upward movement was not as impressive as it was last month when soaring oil and a record low dollar propelled gold to a lifetime high of $1,030.80 on March 17.

"Sentiment towards gold is not nearly as bullish as it was, not least because the outlook for the dollar is considerably less bearish," said Tom Kendall, metals strategist at Mitsubishi Corporation.


"If we get more positive US data this week that surprises on the upside, or if the tone of the statement following the Fed meeting gives people confidence that it has come to the end of its interest rate easing cycle, then it would not be surprising to see gold pushed lower."

The metal has fallen 13 per cent since then and has been struggling to regain $900. It hit a three-week low of $877.60 on Friday before a surging oil market lifted gold's appeal as a hedge against inflation.

Oil hit a new record near $120 a barrel, boosted by a string of bullish factors that include big disruptions to Nigeria's output and a UK refinery strike.

"I do expect gold to drift around $900 for a little while, until we really see another strong shift in sentiment. Even the spike in oil is failing to really fire up the gold market," said Daniel Hynes, metals strategist at Merrill Lynch.

"After such a good run, a lot of people took the opportunity to liquidate, but the general trend would be for rising prices in the medium- to long-term," he said.

Gold futures for June delivery on the Comex division of the New York Mercantile Exchange rose $3.30 an ounce to $893.00 an ounce.

In other metals, platinum rose to $1,958/$1,968 an ounce from $1,944/$1,964 late on Friday and silver gained to $16.91/$16.97 an ounce from $16.83/16.89. But spot palladium fell $3 to $432.50/$438.50 an ounce.