Gold rises as stocks and dollar weaken

By Zandi Shabalala

LONDON (Reuters) - Gold rose on Thursday as oil prices languished near seven-month lows, denting risky assets such as stocks while the dollar retreated.

Spot gold was up 0.5 percent at $1,252.12 per ounce by 1353 GMT. It had added 0.3 percent in the previous session after briefly touching a five-week low of $1,240.75.

U.S. gold futures for August delivery rose 0.6 percent to $1,252.80 per ounce.

"The weakness on the equity market is a factor providing support to gold," said Carsten Menke, an analyst at Julius Baer.

Gold is often seen as a safe-haven option at times of volatility in riskier markets such as stocks.

European equities took a battering as oil prices hovered near seven-month lows on concerns about a supply glut. [O/R][MKTS/GLOB]

"The uncontrolled oil price spill in the futures markets may have seen some traders pushing the risk aversion button and buying gold," said Jeffrey Halley, senior market analyst at OANDA.

"The primary driver appears to be the flattening of the longer-dated U.S. Treasury curve."

The U.S. Treasury yield curve flattened to almost 10-year lows on Wednesday as investors evaluated the impact of hawkish Federal Reserve policy on the economy even as inflation measures are deteriorating. [US/]

Gold is highly sensitive to rising rates and yields, which increase the opportunity cost of holding non-yielding assets such as bullion while boosting the dollar, in which it is priced.

"The U.S. is on a solid growth path and on cruising speed, which justifies higher interest rates and also a stronger U.S dollar. This is something we believe will cause some headwinds for gold," Julius Baer's Menke said.

In technicals, Mitsubishi analyst John Butler said any significant break on either side of $1,250 would be important for the price.

"We have been testing the uptrend that prevailed at the end of last year at $1,240 and we have bounced off that level yesterday," Butler said.

The U.S. dollar index, which measures the greenback against a basket of six currencies, retreated from a one-month high of 97.871 set on Tuesday.

Holdings in SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, rose 0.04 percent to 853.98 tonnes on Wednesday.

Among other precious metals, silver gained 0.7 percent to $16.55 per ounce. Platinum touched its highest in a week during the session and was up 0.9 percent at $931.80, while palladium was marginally softer at $887.50.

(Additional reporting by Vijaykumar Vedala in Bengaluru; Editing by Dale Hudson and David Evans)