Gold bounces off one-week low

By Frank Tang

NEW YORK (Reuters) - Gold bounced from a one-week low on Friday after this week's climb to a record above $900 an ounce, but the market could consolidate before charging higher, fund managers and analysts said.

President George W. Bush's plan announced on Friday to give the U.S. economy temporary tax cuts and other measures totaling about $150 billion failed to boost the gold market as the dollar gained slightly versus the euro on the news.

However, price volatility of the yellow metal could rise in the near term because of uncertainties in other financial markets. Still, gold should benefit from flight-to-quality demand as the stock market lags.

Spot gold hit an intraday low of just over $870 an ounce before rebounding to $881.90/882.60 by New York's last quote at 2:15 p.m., up from $876.70/877.40 in New York, on bargain hunting.

On Friday, Bush said he wanted to work with Congress on a stimulus package that would focus on tax rebates for families and incentives to encourage business investment. The White House said the package could create about 500,000 new jobs.

The dollar should be supported in the near term after the Bush administration's stimulus package, a negative for gold, market watchers said.

"The one thing about gold, in the short term, is that the dollar may move in the trading-range pattern as opposed to the straight-down pattern," said Bill O'Neill, managing partner of LOGIC Advisors in Upper Saddle River, New Jersey.

O'Neill said gold could be on the defensive in the near term in spite of solid long-term fundamentals.

"Gold is consolidating after touching recent highs," said Christoph Eibl, head of trading at Tiberius Asset Management, noting that there had been some investor selling of gold held in exchange-traded funds (ETFs).

"ETF investors ... are holders rather than traders, therefore the recent drop has some strength," he said.

The amount of gold held in New York-listed StreetTRACKS Gold Shares (GLD.P), the world's largest gold-backed ETF, hit a record on January 15, but has since fallen by around 20 metric tons to 629.83 metric tons.

A drop in physical buying from top gold buyer India has also weighed on bullion, but bargain hunting should boost prices in the near term, dealers said.

"We have seen a general slowdown in physical demand in India. With the sharp decline in prices this week, we have seen some beginnings of buying in India. So they certainly have used the recent dip to pick up physical buying," said Andy Montano, a director with bullion dealer ScotiaMocatta in Toronto.

Gold, which roared to a record high of $914 an ounce on Monday, is expected to trade in a range of $870 to $900 an ounce, with movements in the currency, energy and stock markets likely to provide direction.

Gold's drop from the record high was partly driven by selling from investors and funds to cover margin calls from losses in stock markets amid fears of a recession in the United States.