Gold prices soften as dollar recovers

Gold softened a touch in Europe on Tuesday as the dollar index recovered from the 15-month low it hit in the previous session, but remained near record highs as traders bet the currency's recovery would be temporary. Spot gold was bid at $1,101.40 an ounce at 1007 GMT, against $1,103.85 late in New York on Monday. US gold futures for December delivery on the COMEX division of the New York Mercantile Exchange firmed 70 cents to $1,102.10 an ounce. The precious metal hit an all-time high of $1,110.85 an ounce on Monday as the dollar index, which measures the U.S. currency's performance against a basket of six others, plummeted to its lowest since August 2008. "My feeling is we will actually see the dollar break down further in the next few weeks, and that will help take gold up to new levels," said Standard Chartered analyst Daniel Smith. "We think $1,200 is quite a realistic target before the end of the year." He said trade was likely to be choppy going into the new year, however, with jewellery demand still weak as high prices put off buyers, and interest in exchange-traded funds static. "Underlying demand needs to play a bit of catch-up with where prices are," he said. The dollar edged up on Tuesday, reversing some of its recent losses but staying close to a 15-month low against a currency basket. Weakness in the US unit boosts gold's appeal as an alternative asset and makes dollar-priced commodities cheaper for holders of other currencies. Other commodities also weakened, with sector bellwether oil and base metals such as copper declining. Gold tends to track crude prices, as the metal can be bought as a hedge against oil-led inflation.