Gold rises on oil rally but buyers remain cautious

Gold futures finished higher on Friday, helped by a crude oil rally, but bullion investors remained cautious absent definite signs of economic recovery and rising inflation.

"Until we can get a solid close above the $950 to $960 level, gold will be in broad trading range. I am looking for some further consolidation going into next week," said Ralph Preston, futures analyst at California-based HeritageWestFutures.com.

A brighter outlook for the financial sector amid economic optimism has underpinned the gold market this week. The metal, viewed as an inflation hedge, has been weighed down by the prospect of deflation, or a downward spiral in prices.

On Wednesday, gold scaled a two-week after rising toward $950 an ounce as a faster-than-expected pace of U.S. inflation sent Wall Street nearly 3 percent higher.

U.S. stocks traded slightly lower on Friday after a mixed bag of corporate earnings results.

U.S. August gold futures settled up $2.10 at $937.50 an ounce on the COMEX division of the New York Mercantile Exchange.

Spot gold traded at $938.20 an ounce at 3:37 p.m. EDT, against $936.35 in its previous session finish.

Bullion was initially pressured on Friday as the dollar index .DXY, which values the U.S. currency against six others, strengthened.

"Most bullion moves have been largely currency driven and the market is having to closely watch dollar index movement," said Richcomm Global Services senior analyst Pradeep Unni.

"Any uptick in the dollar index would clearly mean gold would have to give up its gains," he added.

Oil jumped nearly $2 toward the $64 a barrel mark after U.S. data showed the housing sector was starting to stabilize, boosting interest in the industrial commodities. Base metals prices also swung higher.

Firmer crude prices support interest in gold as a hedge against oil-led inflation, and signal firm demand for commodities as an asset class.

But demand for both investment gold and jewelry remained soft during the summer lull.

Holdings of the largest gold exchange-traded fund, the SPDR Gold Trust, inched up 0.31 tonnes on Thursday. However, London's ETF Securities said it saw an outflow of nearly 40,000 ounces that day from its ETFS Physical Gold (PHAU.L) product. link....