PRECIOUS-Gold steadies at session lows as dollar strengthens

Tue Jul 2, 2013 4:18pm EDT

* Dollar index hits five-week high to put pressure on gold
    * Focus on Friday's June U.S. employment report
    * SPDR Gold Trust holdings at lowest since February 2009

 (Adds closing prices, comment, changes byline and dateline pvs
NEW YORK/LONDON)
    By Carole Vaporean
    NEW YORK, July 2 (Reuters) - Gold slipped from earlier highs
on Tuesday, ending lower as the dollar strengthened and
investors looked for further indications that the U.S. Federal
Reserve may soon end or taper its economic stimulus program.
    Many participants are on hold until Friday's June U.S.
employment report offers new insights into economic growth.
    Spot gold extended losses to 0.81 percent at
$1,242.81 by 3:23 EDT (1723 GMT), after rising earlier to a near
one-week high at $1,267.20 an ounce. U.S. gold futures 
for August delivery lost 1.09 percent to $1,242 an ounce.    
    The precious metal was higher in early business on short
cover buying after ending June with its biggest quarterly loss
since at least 1968. But those gains were fleeting as some money
managers used the opportunity to sell out of long positions.
    "Investors have gradually come to the realization that there
is no reason to own the asset class now because at some point
interest rates are going to go up and there is no inflation
anywhere to be seen," said Troy Gayeski, partner and senior
portfolio manager at SkyBridge, which has $7.9 billion assets
under management and advisement. 
    Investors, wary of taking fresh positions before the U.S.
Independence Day holiday on Thursday, are looking ahead to 
Friday's U.S. labor report. A strong reading would lift both
U.S. Treasury yields and the dollar, and in turn weigh on gold.
    "If numbers are better than expected, selling momentum could
kick in again," MKS Capital senior vice president Bernard Sin
said.
    Gold lost 23 percent in the April-June period after Federal
Reserve Chairman Ben Bernanke suggested that the central bank
would begin tightening its ultra-loose monetary policy when U.S.
economic growth picked up. That would mean rising U.S. interest
rates, making gold less attractive.
    The dollar rose to a five-week peak against a basket
of currencies on a broad view that the Federal Reserve will
scale back its stimulus measures sooner than expected given the
recent run of generally solid U.S. economic data. 
    Data so far this week show a rebound in U.S. manufacturing
and a rise in factory orders, suggesting the sector was
stabilizing.  
    Friday's U.S. non-farm payrolls report will be watched
closely, with investors expecting 165,000 new jobs in June and a
lower unemployment rate of 7.5 percent. 
    Some analysts warned that gold's recovery from last week's
three-year low at $1,180.70 was not likely to last for long,
with some participants anticipating eventual prices declines to
$1,000 an ounce.
    "The dollar index is strengthening quite a bit, equities are
strengthening and you're seeing interest rates go up. That seems
to be the perfect storm against the metal," said Phillip
Streible, senior commodities broker at R.J. O'Brien in Chicago.
    He said that gold's failure to push through resistance near
$1,260 per ounce caused other players to join the selling. 
     
    ETF HOLDINGS HIT 4-1/2 YEAR LOWS 
    SPDR Gold Trust, the world's largest gold
exchange-traded fund, reported an outflow of 1.2 tonnes to
968.30 tonnes on Monday, its lowest since February 2009. Its
holdings have dropped 382.5 tonnes since the start of the year.
 
    Physical demand has not rescued gold as it did in April,
when prices fell the most in 30 years. But Shanghai futures
 were trading at more than a $30 premium to spot prices,
indicating some renewed interest.
    Commodity market brokers Marex Spectron said there "has been
some good physical demand with premiums in Asia remaining
elevated ... (showing) that buyers believe that gold has
probably done enough on the downside for now."
    In Hong Kong and Singapore, however, gold bar premiums
remained at the same levels as last week, indicating demand had
not picked up strongly. 
    Silver was down with gold, losing 1.38 percent to $19.29 an
ounce. It reached a near three-year low at $18.19 on Friday.
    Platinum fell 0.89 percent to $1,362.24 an ounce and
palladium dropped 0.44 percent to $681.47 an ounce.
    
  
 3:49 PM EST     LAST/    NET   PCT      LOW    HIGH  CURRENT
                SETTLE   CHNG  CHNG                       VOL
 US Gold AUG   1243.40 -12.30  -1.0  1238.80 1267.00  156,482
 US Silver SEP 0.19309 -0.003  -1.5   00.192  00.198   30,206
 US Plat OCT   1367.80 -14.70  -1.1  1367.10 1388.70    8,669
 US Pall SEP    688.90   2.20   0.3   682.65  695.95    2,930
                                                              
 Gold          1242.61 -10.19  -0.8  1240.23 1267.20         
 Silver         19.360 -0.200  -1.0   19.280  19.810
 Platinum      1362.00 -12.50  -0.9  1368.00 1384.50
 Palladium      683.00  -1.50  -0.2   686.27  693.50
                                                              
 TOTAL MARKET              VOLUME          30-D ATM VOLATILITY
                CURRENT   30D AVG  250D AVG   CURRENT     CHG
 US Gold        183,290             172,509     26.93   -0.63
 US Silver       32,154              52,120      37.5   -1.27
 US Platinum      9,283              11,719     22.19   -0.06
 US Palladium     2,975               5,180                  
                                                              
        

 (Additional reporting by Clara Denina in London.; Editing by
Bob Burgdorfer and Grant McCool)
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