LONDON, Sept 10: Gold recovered in Europe on Wednesday after hitting an 11-month low in Asian trade with rising oil prices boosting bullion’s appeal as an inflation hedge and on strong physical demand.

Spot gold was at $775.50/776.60 an ounce against $775.80/777.80 in late New York, well off its session low of $762.55 an ounce, its weakest since Oct 2007.

Gold is benefiting from an uptick in crude prices, which rallied more than $1 a barrel on Wednesday after oil cartel Opec unexpectedly said it would cut its output by 500,000 barrels a day.

Higher oil prices boost expectations inflation will rise, ncouraging buying of bullion as a hedge against rising prices.

Gold traders were awaiting US crude and oil product stockpile data to be released by the Dept of Energy later on Wednesday for clues as to the future direction of trade.

The world’s largest gold-backed exchange traded fund, the SPDR Gold Trust, said its bullion holdings dipped more than 10 tons, or 1.67 per cent, on Sept. 9.

The trust now holds 631.2 tons of gold, down from 641.93 tons on Monday. The trust has sold some 68.7 tons of gold since its holdings hit a record 705.9 tons in July.

With the gold price having tumbled so far, some weaker holders are bailing out, said Stephen Briggs, commodity strategist at RBS Global Banking and Markets.

Outflows from ETFs clearly are important, because at the end of the day ... gold is nothing if not an investment vehicle, he added.

Among other precious metals, platinum and palladium both slippe sharply as investors worried about the outlook for demand from carmakers, who are major consumers of both platinum group metals.

China said its passenger car sales fell 6.24 per cent year-on-year in August, the first monthly decline in more than two years.

Platinum fell to an 18-month low of $1,196.50, down more than 3 per cent on the day, while palladium slid more than 5 per cent to $219.50, its lowest since November 2005.

Palladium was at $228.00/233.00 against $234.00/242.00.

Silver slipped to $11.22/11.28 from $11.39/11.47.—Reuters