PRECIOUS-Gold edges up above $940, eyes on dollar

* Physical demand cited on dips, but direction unclear

* SPDR Gold holdings XAUEXT-NYS-TT stay unchanged

By Risa Maeda

TOKYO, Aug 20 (Reuters) - Gold edged higher above $940 an
ounce on Thursday, underpinned by light physical buying as
investors eyed the currency market for clues on the precious
metal's direction.

Doubts about a nascent global economic recovery had recently
prompted investors to sell riskier assets and pile into
safe-haven bets including the dollar and U.S. Treasuries.

But a fall in the dollar this week fuelled investors'
tolerance for such riskier assets as stocks and commodities.

Spot gold XAU= stood at $943.40 an ounce at 0549 GMT, up
0.2 percent from New York's notional close of $941.55.

It hit a near three-week low below $930 per ounce on Monday.

U.S. gold futures for December delivery GCZ9 were at
$945.00 an ounce. The contract on Wednesday settled up $5.60 at
$944.80 on the COMEX division of the New York Mercantile
Exchange.

"At a level below $940, some physical demand picked up in the
past few days. But the volume was not that much," said Dick Poon,
manager of precious metals at Heraeus in Hong Kong.

World gold demand fell 9 percent in the second quarter as
rising prices and the impact of the global recession curbed
jewellery consumption, a report by the World Gold Council, an
industry-sponsored trade group, said on Wednesday. [ID:nLJ559281]

Heraeus' Poon said jewellery demand has recovered in the past
two months as a rally in equity markets underlined economic
optimism.

But gold prices face short-term resistance around $950 per
ounce, traders said. Some traders even said a decisive fall below
$940 could trigger a rush of fund liquidation.

"A pile of long positions held by funds means a drop below
$940 would quickly widen the downside risk," said a manager at a
Japanese trading firm.

A lack of direction in gold prices has recently kept many
long-term investors away, resulting in a market driven mainly by
speculative fund positions, the manager said.

Such funds often sell or buy, depending on the dollar. Gold
is often considered a hedge against the U.S. currency.

"Our consensus right now is that we just need to watch the
euro/dollar to anticipate gold's day-to-day movements," the
manager added.

The currency market so far on Thursday had failed to provide
any clues on the direction of gold.

The euro, which hit an eight-month high this month at
$1.4448, was steady at $1.4231 EUR=, having gained nearly 0.8
percent in the previous session. [USD/]

Reflecting lacklustre interest by long-term investors, the
world's largest gold-backed exchange-traded fund, the SPDR Gold
Trust (GLD), said its holdings stood at 1,065.49 tonnes as of
Aug. 19, unchanged since Aug. 11. [GOL/SPDR]

Precious metals prices at 0409 GMT
Metal Last Change Pct chg YTD pct chg Turnover
Precious metals prices at 0548 GMT
Metal Last Change Pct chg YTD pct chg Turnover
Spot Gold 943.50 1.95 +0.21 7.20
Spot Silver 13.97 0.18 +1.31 23.41
Spot Platinum 1247.50 13.00 +1.05 33.85
Spot Palladium 271.50 1.50 +0.56 47.15
TOCOM Gold 2874.00 25.00 +0.88 11.70 39283
TOCOM Platinum 3796.00 96.00 +2.59 43.14 11092
TOCOM Silver 426.00 7.00 +1.67 33.42 152
TOCOM Palladium 830.00 9.00 +1.10 50.91 92
Euro/Dollar 1.4240
Dollar/Yen 94.40
TOCOM prices in yen per gram, except TOCOM silver which is
priced in yen per 10 grams. Spot prices in $ per ounce.
(Additional reporting by Miho Yoshikawa)