Gold little changed as dollar steadies

By Jan Harvey

LONDON (Reuters) - Gold steadied on Friday as the dollar index reversed earlier losses, but trading was muted as the U.S. currency remained hemmed into ranges ahead of a Federal Reserve meeting next week.

Spot gold was bid at $932.90 an ounce at 1420 GMT (10:20 a.m. EDT), against $932.35 an ounce late in New York on Thursday. U.S. gold futures for August delivery on the COMEX division of the New York Mercantile Exchange eased 70 cents to $933.90 an ounce.

Prices awaited new direction from the currency markets, currently the main driver of gold. Gold becomes cheaper for holders of other currencies as the U.S. dollar slips.

"If you are looking at the ups and downs of gold in its narrow trading range, it is more or less a reflection of the swings in the euro/dollar exchange rate," said Peter Fertig, a consultant at Quantitative Commodity Research in Germany.

The dollar .DXY fell broadly as improved U.S. data fueled hopes of an economic recovery. It later pared gains against a basket of currencies, however.

Moves in the currency remained limited ahead of a two-day Fed policy meeting next week. As long as the currency markets remain rangebound, gold will also be hemmed in.

Factors such as jewelry buying, safe-haven demand and inflation hedging are all likely to remain subservient to the influence of currencies, analysts said.

"Inflation expectations are not there just yet, and the precious metal could see even more losses if equities bounce back up," VTB Capital said in a note.

"Gold's attractiveness as a safe haven asset is virtually zero at the moment, which is evident from the unchanged speculative positions in gold futures or ETFs (exchange-traded funds)," it added.

On other markets, European shares extended gains early afternoon, while U.S. stocks opened higher as appetite for equities picked up. Oil firmed a touch after bullish economic data helped the demand outlook.

WIDER MARKETS

Holdings of the major gold exchange-traded funds were stable, as investors awaited clues from the wider markets. Another wave of bad news on the economy could unleash new inflows, however, analysts said.

The U.S. Senate signaled its approval of a long-planned sale of just over 400 tonnes of gold by the International Monetary Fund on Thursday.

UBS analyst John Reade said in a note: "There are lots of uncertainties regarding the sale but we do not expect this to be a negatively disruptive factor to the gold market."

"If the gold is taken by other official sector buyers (it) could be a very positive development for the market," he added.