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Gold rises 1 percent on softer dollar, Turkey-Russia tensions

Women look at jewellery displayed at a shop in Amman, Jordan July 27, 2015. REUTERS/Muhammad Hamed/Files (Reuters)

By Marcy Nicholson and Jan Harvey NEW YORK/LONDON (Reuters) - Gold rose 1 percent on Tuesday, recovering from near six-year lows as news that Turkish fighter jets had shot down a Russian warplane near the Syrian border sparked a rush to safety among investors, weighing on the dollar. The metal remained under pressure, however, from expectations the U.S. Federal Reserve will press ahead with its first interest rate rise in nearly a decade next month. Spot gold rose as much as 1.1 percent to $1,080.51 and was up 0.5 percent at $1,074.61 an ounce at 3:13 p.m. EST (2013 GMT). U.S. gold futures for December delivery settled up 0.7 percent at $1,073.80. "This is a clear escalation of the crisis, which should lift gold," Commerzbank analyst Carsten Fritsch said. The U.S. dollar index <.DXY> fell as investors piled into safe-haven currencies on concerns about rising tension between Russia and Turkey, shrugging off economic data. Stocks retreated and investors sought safety in low-risk government debt and the Japanese yen. Spot gold slid to its lowest since February 2010 last week at $1,064.95 an ounce, and pressed back to within a couple dollars of that level on Monday, with analysts saying bullion remains vulnerable. "If the dollar continues to strengthen, gold will soften. It won't necessarily be a smooth trajectory, but I don't see any reason why it should pick up," Citi analyst David Wilson said. "Markets are still targeting that December rate hike." Gold tends to benefit from ultra-low U.S. rates, which cut the opportunity cost of holding non-yielding bullion, while weighing on the dollar. Its 9 percent drop this year has come largely on the back of rate hike speculation. "We remain bearish about the gold price ... and increase our 2015 average gold price forecast slightly, from $1,150/oz to $1,160/oz," said Societe Generale in a report, pointing to expectations for a Fed rate hike announcement at the December meeting and continued pressure in a rising interest rate environment. The bank forecast gold will fall to $1,040 an ounce in the first quarter of 2016 and fall steadily to $955 by the fourth quarter. Silver was up 0.4 percent at $14.16 an ounce, while palladium was 0.1 percent higher at $537.50 an ounce. Platinum fell as much as 0.9 percent to $831.80 an ounce, the lowest since December 2008. The platinum market deficit will shrink this year, before moving into a small surplus in 2016 as supply from mining and recycling rises and investment falls, the World Platinum Investment Council said in a report. (Additional reporting by A. Ananthalakshmi in Singapore; editing by David Evans and Chizu Nomiyama)