PRECIOUS-Gold steady as stimulus supports outlook

Tue Sep 25, 2012 3:08am EDT

* Dollar strength caps gold momentum
    * Gold ETF holdings hit record highs
    * Coming up: U.S. consumer confidence, September; 1400 GMT

 (Updates prices)
    By Rujun Shen
    SINGAPORE, Sept 25 (Reuters) - Gold was steady on Tuesday,
consolidating above a 1-1/2 week low hit in the previous
session, as expectations for further strength in the metal tied
to recent central bank stimulus measures supported sentiment.
    Cash gold dropped half a percent in the previous session,
after data showing weak German business sentiment hurt the euro
and sent the dollar to a 1-1/2 week high against a basket of
currencies, weighing on dollar-priced commodities including
gold.  
    Despite a pullback from a 6-1/2 month high hit last Friday,
gold's outlook remains rosy as investors expect the stimulus
plans by central banks to maintain a bullion-friendly low
interest rate environment. 
    "The investment interest in gold continues to rise, as we
see COMEX net length increasing and gold ETF (exchange-traded
fund) holdings up," said Li Ning, an analyst at Shanghai CIFCO
Futures. "There is a strong likelihood that gold will rise
further."
    Holdings in physically backed gold ETFs rose to a record
high of 73.765 million ounces, or 2,294.348 tonnes, by Sept. 24.
 
    Spot gold was little changed at $1,765.10 an ounce by
0651 GMT, after dropping to a one-week low of $1,755.30 in the
previous session. 
    U.S. gold edged up 0.2 percent to $1,767.70.
    Some argued that though sentiment towards gold will continue
to be supported by easy monetary policy, the momentum might be
dampened by sluggish physical demand and high speculative
interest in the futures market.
    "We still prefer to be buying gold on dips and believe the
break higher will eventually come. But the futures market needs
to lose some speculative length and the physical market needs to
adjust to a higher price-range first," Walter de Wet, an analyst
at Standard Bank, said in a research note.
    He expected gold to reach $1,900 in the latter half of the
fourth quarter.
    
    
    It may be time for gold to take a break after five weeks of
straight gains, which coincides with the last trading week
before key consumer China shuts down for its week-long National
Day holiday next week.
    "People will square off some positions before the holiday
next week," said a Shanghai-based trader, "In addition, sluggish
oil prices are also weighing on sentiment in gold and silver."
    Spot palladium, which staged its sharpest one-day
decline in more than six months with a 4.1-percent drop on
Monday, inched up 0.3 percent to $642.97.    
 
 Precious metals prices 0651 GMT
  Metal             Last    Change  Pct chg  YTD pct chg    Volume
  Spot Gold        1765.10    1.45   +0.08     12.87
  Spot Silver        34.03    0.09   +0.27     22.90
  Spot Platinum    1622.00    7.57   +0.47     16.44
  Spot Palladium    642.97    1.97   +0.31     -1.46
  COMEX GOLD DEC2  1767.70    3.10   +0.18     12.82        14584
  COMEX SILVER DEC2  34.10    0.11   +0.33     22.14         4253
  Euro/Dollar       1.2915
  Dollar/Yen         77.77
  COMEX gold and silver contracts show the most active months
 
 (Editing by Ed Davies and Joseph Radford)
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