Gold eases on dollar strength, but holds above $1,200

SINGAPORE, Dec 4 (Reuters): Gold edged lower on Thursday as the metal's appeal as a hedge declined with the dollar trading at a 5-1/2-year high against basket of major currencies.

Spot gold fell 0.2 per cent to $1,207.40 an ounce by 0039 GMT, after rising nearly 1 per cent in the previous session.

The metal is edging closer to a one-month high of $1,220.99 reached on Monday, after having slumped to $1,142.91 in the same session.

US crude closed higher on Wednesday at more than $67 after data showed a surprise tumble in inventories, but a report suggesting Saudi Arabia expected still lower prices for oil sent Brent below $70 a barrel.

Gold has been moving in tandem with oil prices recently as the metal is seen as a hedge against oil-led inflation.

The US dollar index climbed to its highest in more than 5-1/2 years on Wednesday on optimism over the economy.

Dollar-denominated bullion tends to drop lower on a stronger greenback as its hedge-appeal is lowered.

A popular exchange-traded fund of gold miners dove nearly 10 per cent in the waning seconds of trading on Wednesday, the latest in a series of unusual moves in single securities on heavy volume this month.

South African precious metals mining firms Sibanye Gold  and Northam Platinum are among a group of about 10 companies interested in Anglo American Platinum's  Union mine in South Africa, Sibanye and mining industry sources said.

The platinum market is expected to see a shortfall of 885,000 ounces this year, a report by the World Platinum Investment Council estimated on Wednesday, as a strike in major producer South Africa reduced supply.