Gold regains $1,000

LONDON - Gold prices rose back above $1,000 an ounce in Europe on Friday as the dollar index tumbled to one-year lows, fuelling interest in gold as an alternative asset.

Traders are watching to see if gold can sustain its rise back above $1,000 and have expressed concern the metal's climb to 18-month highs this week was overdone amid weakness in physical demand and rising scrap sales.

Silver hit a 13-month high of $16.93 an ounce, supported by rising gold and copper prices. Spot gold was bid at $1,001.05 an ounce at 1117 GMT against $995.50 late in New York on Thursday, having earlier touched a high of $1,002.70.

Gold's ability to build on its gains will be reliant on it holding this level to the end of the week, analysts said.

"With the dollar marking a new year low and the magical mark of $1,000 having been taken out, you would have expected more price action," Commerzbank analyst Eugen Weinberg said. "That it hasn't happened I interpret as a relative weakness.

"If this mark is not taken out on a weekly basis and should the price stay below $1,000 an ounce, I would not be surprised to see some selling next week."

Gold was mainly supported by weakness in the dollar, which hit a one-year low against a currency basket after stronger-than-expected Chinese data. Recovery hopes are fuelling interest in currencies seen as higher risk.

The euro reached its highest level this year against the U.S. currency. A decline in the dollar could precipitate substantial gains in gold, analysts said.

"Currency movements will be the principal driver for gold, and the impact of the U.S. dollar seems to have regained its prominence, despite a number of potential obstacles," Standard Chartered said in a note.

"With the U.S. dollar likely to weaken further, gold should average $1,050 an ounce in Q4."

U.S. gold futures for December delivery on the COMEX division of the New York Mercantile Exchange rose $6.20 to $1,003 an ounce.

On the wider markets, oil prices steadied, giving up earlier gains that took them above $72 a barrel, while equities rose in Europe and Asia after the Chinese data.

Physical demand for gold was lacklustre as prices rose, traders said. The largest gold exchange-traded fund, the SPDR Gold Trust , said its holdings were unchanged on Thursday for a sixth day.

Buyers of physical gold are waiting to see if the precious metal's recent price rise is sustainable before purchasing the metal. Consumer buying in key markets such as India, Turkey and the Middle East has been slack this year as prices rose.

Among other precious metals, silver hit its highest since early August 2008 in Asian trade, tracking a rise in gold and base metals prices. It was later at $16.84 an ounce against $16.68 an ounce.

Though silver is an investment metal like gold, it is also widely used in industry, especially electronics manufacturing, and often tracks moves in base metals such as copper and nickel.

"Further upside resistance is expected, with the industrial precious metal reliant on fresh upside momentum in gold to clear the large volume of chart lines in the $16.90-18.30 area," said James Moore, an analyst at TheBullionDesk.com.

Platinum was at $1,292 an ounce against $1,284, while palladium was at $290.50 against $288.50.

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