LONDON -- Gold eased on Tuesday on profit taking, but held near 11-month highs and might aim at the next target of $700 an ounce on a weaker dollar outlook and firm oil prices, dealers said.
Spot gold was at $688.80/689.30 an ounce by 1355 GMT, compared with $690.90/691.40 in New York late on Monday, when prices surged to an 11-month high of $691.
"We are gradually going to go back upwards. And actually that's what you want, because you don't want to have a boom and then a bust afterwards. I think we can go up towards the $700 mark this quarter," said Michael Widmer, director of metals research at Calyon Corporate and Investment Bank.
"What markets are looking for is having lower inflation rates, which could provide incentive to the U.S. Federal Reserve to lower interest rates. And that would mean there would be a downward pressure on the dollar. Gold would benefit from that."
The dollar fell to a new two-year low versus the euro on Tuesday after a report showed core U.S. consumer prices rose by less than expected in March.
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Investment funds have been moving into gold in the current quarter after seeing it climb more than five percent since the start of the month, dealers said.
"Firmer oil prices, continued dollar weakness coupled with an improving fundamental outlook should support gold prices higher in the longer term," Barclays Capital said in a note.
"However, in the nearer term, prices are likely to trade in consolidation mode if not softening slightly before resuming their upward trend."
Analysts said plans by Papua New Guinea-based gold miner Lihir Gold Ltd. to raise A$1.2 billion ($1 billion) to close out its hedging contracts, repay debt and fund future expansion was positive news for the market.
"In the short term, we are perhaps slightly more nervous of gold up near $690 following Lihir's revelation, but this news makes us somewhat more positive about the longer term outlook for gold prices," said John Reade of UBS Investment Bank.
In other metals, platinum declined to $1,269/1,274 an ounce from $1,271/1,276 in New York, while palladium edged down to $371/376 an ounce from $372/377. Silver fell to $13.96/13.99 an ounce from $14.03/14.06.
Palladium and platinum hit 11-month and five-month peaks respectively on Monday on news of a new exchange-traded fund.
Switzerland's Zurich Cantonal Bank said it planned to launch exchange-traded funds (ETFs) based on platinum, palladium and silver from the next month.
But the world's biggest platinum producer Angloplat said it will not supply physical metal to the fund because it would sharpen supply shortages.
Widmer of Calyon said a string of market deficits in the metal in recent years had slashed inventories.
"That means that the above-ground stocks that you had maybe 10 years ago and that you could have simply shifted from stocks at banks to stocks at the ETF, have been drawn down because of high physical demand from autocatalyst producers. That makes it very challenging for them (Zurich Cantonal Bank)."
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