Oct 22, 2010
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Gold recovers from 2-1/2 week low as dollar retreats

Oct 22, 2010

(Reuters) - Gold prices steadied on Friday, recovering losses that took them to 2-1/2 week lows earlier in the session, as the dollar slipped lower against a currency basket ahead of this weekend's G20 meeting in South Korea.

Investors are wary over whether any clear agreement to tackle currency imbalances will be reached at the meeting.

Spot gold was bid at $1,324.99 an ounce at 1337 GMT (9:37 a.m. EDT), against $1,323.60 late in New York on Thursday, having earlier fallen as low as $1,315.09. U.S. gold futures for December delivery rose 30 cents an ounce to $1,325.90.

"The dollar's been a very important driver for sure," said Standard Chartered analyst Daniel Smith. "I tend to think we might see a bit more weakness in gold in the short term."

"There are a lot of bullish stories out there for gold, but I think the price has run up too fast and we're just going through a period of consolidation now."

Spot prices rallied sharply to a record $1,387.10 an ounce late last week but have struggled to maintain traction as the dollar rebounded from lows amid fears expected U.S. monetary easing had been too heavily priced into the market.

The dollar eased 0.1 percent on Friday but is still on track for its first weekly rise in six weeks versus a basket of major currencies.

Although significant action is not widely anticipated, traders are awaiting the outcome of this weekend's G20 meeting in South Korea for direction, and a forthcoming Fed policy meeting that could result in further quantitative easing.

The dollar's strength has led to a 3.1 percent drop this week in gold, now heading for a decline roughly equivalent to its last big fall in mid-July.

Good physical demand from traditional bullion-buying centers such as India is strengthening as prices descend, he added, which is likely to support the market above $1,300 an ounce.

"Physical demand is certainly a feature, but it isn't enough yet to mop up that selling," said ANZ Bank analyst Peter Hillyard.

"Investor selling is always going to beat physical demand, but often what it (physical demand) does is herald where the market is going to go next."


Dealers in India reported they were continuing to stock up for forthcoming festivals as prices extended losses. "I have many advanced orders at $1,319 or below," said one dealer with a bullion dealing private bank.

The world's largest gold-backed exchange-traded fund, New York's SPDR Gold Trust, saw a further drop in its holdings on Thursday, however. Gold held by the fund dropped 0.9 tonnes, its 11th session of outflows in 15.

On the supply side of the market, African Barrick Gold, which was spun off from the top world gold miner Barrick Gold

earlier this year, reported weaker-than-expected production for the third quarter.

Among other precious metals, silver was bid at $23.17 an ounce against $23.18 and was heading for its biggest weekly loss since early July as it followed gold prices lower.

"As usual silver has been underperforming during the correction just like it has been outperforming during the recent rally," said Saxo Bank senior manager Ole Hansen in a note on Friday.

"Support can be found down toward $22.18 and $21.34 which are Fibonacci retracement levels of the recent rally."

The ratio of gold to silver -- the number of ounces of silver needed to buy an ounce of gold -- rebounded from its lowest in more than two years to reach a 10-day high on Friday as silver underperformed gold in a falling market.

Elsewhere platinum was at $1,672.19 an ounce against $1,665.95, while palladium was at $585.50 versus $581.53.

(Additional reporting by Elizabeth Fullerton; editing by Keiron Henderson and Alison Birrane)

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