Gold ends tad down but dollar in focus

By Frank Tang

NEW YORK (Reuters) - Gold futures finished a tad weaker in quiet, range-bound trade on Monday at the start of a shortened holiday week, as a unchanged dollar failed to boost the metal as a hedge against the falling U.S. currency.

Bullion could fall further if the dollar regained its strength in the near term. Investors view gold as an insurance against the falling value of their dollar-denominated portfolio.

"The dollar is definitely a significant factor, which has been driving gold for a while. If the dollar gets stronger, we will see weaker gold," said Miguel Perez-Santalla, vice president of sales of Heraeus Precious Metals Management.

He said that gold would most likely range-bound ahead of the U.S. Independence Day holiday on Friday. Canadian markets will also be shut on Wednesday for the Canada Day holiday.

The price of gold largely moved in a broad range between $920 and $940 per ounce last week, as the combination of the resurgent dollar and easing inflation worries capped bullion's gains.

U.S. August futures settled down 30 cents at $940.70 an ounce at on the COMEX division of the New York Mercantile Exchange.

Spot gold was at $939.05 at 2:15 p.m. EDT, compared with $938.05 quoted late in New York on Friday.

Analysts cited selling pressure in gold on Monday after China said it would maintain a stable foreign exchange policy, quashing speculation that the country could diversify part of its reserves into gold.

China, which holds vast reserves of U.S. currency and Treasuries, said at a meeting of central bankers in Basel, Switzerland, that it would not make any "sudden changes" to currency reserves.

James Moore, gold market analyst at TheBullionDesk.com said the soothing comments on China's reserve policy, while generally supportive for the dollar, were not particularly surprising to gold investors.

Bullion investors are looking for trading cues from the U.S. nonfarm payrolls report scheduled to release on Thursday.

CORRECTION DUE?

Some analysts said the precious metal could be due for a slight correction following last week's rally, which pushed the price of gold to a two-week high.

"I think the best bet for the moment is that we are going into a correction phase for gold after last week's rise," said Jesper Dannesboe, an analyst at Societe Generale.

"I think it's fair to say that the whole commodity rally is running out of steam, and risk is to the downside," he added.