NEW YORK, May 16 (Reuters) - COMEX gold jumped early Friday after the dollar reversed a 3-day recovery against the euro, with gold gleaming as an alternate investment as slow growth and deflation fears confused outlooks for currencies.
Dealers said the dollar fell on anticipation of even lower U.S. interest rates, with news of a 0.3 percent drop in the U.S. April Consumer Price index adding to worries that the economy is tipping toward deflation, fanned by Thursday's record 1.9 percent drop in April producer prices.
"The dollar got crushed this morning an hour before we opened and that's what drove gold higher," said a floor broker. "The dollar is becoming worth less and the euro is not an appealing investment either."
At 0929 EDT, June gold was up $3.10 at $355.90 an ounce, trading from $351.60 to a 10-week high at $356.70.
Spot gold was at $355.50/6.20, up from $352.35/3.05 at Thursday's close. London bullion dealers fixed the morning spot reference price at $352.55 an ounce.
The euro rallied back to $1.1510/13 early Friday, enhancing the bullion buying power of European investors, after pulling gold down late Thursday when it dipped below $1.13.
Gold looked firmly planted in a range above $350. Bullishness was restored by the euro's rise to a 4-year high at $1.1623 on Monday.
The yellow metal is up almost $37, or 11 percent, since setting a low for the year under $320 in early April.
The June contract has retraced half of its plunge from 6-1/2 year highs at $391.70 on Feb 4, when worries about the weak dollar and the build-up to the war in Iraq made gold, as a safe-haven, a darling of financial markets.
Though the quick victory in Iraq reduced market jitters, global political anxiety is resurfacing. Monday's suicide bombings against foreign housing compounds in Saudi Arabia put al Qaeda, which is suspected to be behind the attacks, back on the front pages.
Lebanon said Thursday it had foiled a plot to attack the U.S. embassy, and Britain banned flights to Kenya as fresh terror alerts rang out across the globe.
"The price of gold is really a political and economic barometer. But it's a worldwide signal, it's not just the U.S.," said George Gero, senior vice president at Legg Mason Wood Walker Inc. "A lot of it has been the dollar. But now the dollar has done better in the last couple of days and gold did not come off."
July silver was up 2.5 cents at $4.805 an ounce, trading $4.77-$4.83. Spot silver fetched $4.78/80, up from $4.77/79. The London fix was $4.79 an ounce.
NYMEX July platinum was $4.50 higher at $657 an ounce, near Thursday's 8-week high. Spot platinum was shown at $664.00/669.00.
"Platinum and gold both seem to agree," said Gero. "The fact that platinum is doing this well is saying that going forward automobile sales may not be as bad as everybody thinks they will be, or jewelry sales, and that very low interest rates, long-term, may stimulate automobile sales because the fleets are aging."
June palladium was off 15 cents at $159.00 an ounce. Spot palladium fetched $155.00/160.00.