LONDON, June 11: Gold recovered some lost ground on Wednesday as traders took advantage of Tuesday’s price dip to buy into the market, with firmer oil prices boosting the precious metal’s appeal as an inflation hedge.

The dollar has also steadied against the euro, easing downward pressure on gold. Traders remain nervous, however, that renewed dollar strength that sparked a more than 2 per cent slide in gold prices on Tuesday could pressure the metal further if it continues.

Gold rose to $873.20/874.20 an ounce from $866.00/868.00 late in New York on Tuesday.

The oil price is picking up again, said Eugen Weinberg, an analyst at Commerzbank in Frankfurt. The dollar is the single most important factor (in the gold market) but we are also watching oil.

Gold is an inflation hedge so if people are concerned about that they will seek protection in gold, he added.

Oil prices firmed on Wednesday after two sessions of decline as the market awaited key inventory data from the US Dept of Energy, which is expected to show another drop in crude stocks.

Its recovery is helping gold, which slipped this week after US Federal Reserve Chairman Ben Bernanke said the Fed would seriously resist inflation pressures, raising expectations the central bank will hike rates later this year.

Later on Wednesday traders will be awaiting the reaction of oil to US inventory data and eyeing the foreign exchange markets for clues as to the next move in gold.

In the case it was underlining Bernanke’s statement that economic risks were fading, it could have a negative impact on gold in the evening, said Dresdner Kleinwort analyst Peter Fertig in a note.

Spot platinum meanwhile climbed to $2,012.50/2,032.50 an ounce against $1,991.50/2,011.50 late in New York on Tuesday.

The metal is supported by supply problems caused by the ongoing power shortage in South Africa, source of some 80 per cent of world platinum output.

Markets fear growing shortages in the coming months during the South African winter, said analyst John Meyer at Fairfax investment bank.—Reuters