May 8, 2013 / 10:01 AM / in 5 years

PRECIOUS-Gold up over 1 pct on dollar drop, physical demand

* Rise in German industrial output weighs on dollar
    * Equities rally could sap bullion interest
    * ETF holdings drop to lowest since early 2009
    * Coming up: U.S. wholesale inventory data Thursday

 (Adds market details, updates prices)
    By Frank Tang and Clara Denina 
    NEW YORK/LONDON, May 8 (Reuters) - Gold was up over 1
percent on Wednesday, rising for the first time in three
sessions as a drop in the dollar and strong physical bullion
buying helped offset pressure from a continued decline in
gold-backed exchange-traded fund holdings.
    The precious metal and industrial commodities were supported
by dollar's sharp fall against the euro. An unexpected rise in
German industrial output pared back prospects of a near-term
interest rate cut in the euro zone.  
    Hopes of surging demand from China in coming months, after
net gold inflows from Hong Kong hit a record in March, might
further support bullion prices, which have been hurt by sagging
investor confidence this year, analysts said.
    "Indian physical demand is also strong and the combined
response by consumers and retail investors to the plunge in
prices since mid-April is absorbing a portion of the liquidation
in the gold-exchange traded funds," said James Steel, chief
precious metals analyst at HSBC.
    Spot gold rose to $1,471.16 by 3:29 p.m. EDT (1929
GMT), up 1.3 percent, its biggest one-day percentage increase in
nearly two weeks.
    Bullion fell over 1 percent in the previous session as the
equity markets rallied. 
    U.S. Comex gold futures for June delivery settled up
$24.90 at $1,473.70 an ounce, with trading volume about 20
percent below its 30-day average, preliminary Reuters data
showed.
    Analysts said, however, U.S. equities' rallies will likely
pressure gold's safe-haven appeal. On Wednesday, the S&P 500
index reversed early losses and was set to end at another
intraday record high. 
    "Given the reduction of tail-risk in Europe, the rising
labor market in the U.S. and the low inflation rate, investors
prefer equities to gold in the near term," bullion broker Sharps
Pixley said in a note.
    
    ETF OUTFLOWS CONTINUE 
    Holdings of SPDR Gold Trust, the world's largest
gold-backed exchange-traded fund, fell 0.42 percent to 1,057.79
tonnes, the lowest since early 2009.   
   
    Spot gold was down more than 12 percent so far this year
after posting annual gains in the past 12 years as easy monetary
policy prompted investors to buy bullion.
    The physical market remained tight given a recent surge in
demand for gold bars, coins and nuggets, but some analysts said
volumes had come off slightly after a recent rush in Asian
countries. 
    UBS said in a note that its index of India physical flows
continued to suggest demand that is well above average.
    In other precious metals, silver eased 0.1 percent to
$23.86 an ounce. Platinum rose 1.3 percent to $1,496.24
an ounce, while palladium was up 2.1 percent at 692.46.
 3:29 PM EDT     LAST/    NET   PCT      LOW    HIGH  CURRENT
                SETTLE   CHNG  CHNG                       VOL
 US Gold JUN   1473.70  24.90   1.7  1446.70 1475.80  144,661
 US Silver JUL  23.927  0.121   0.5   23.640  24.095   34,136
 US Plat JUL   1504.90  23.70   1.6  1480.80 1509.00    7,541
 US Pall JUN    698.25  17.65   2.6   681.15  699.40    3,199
                                                              
 Gold          1471.16  19.17   1.3  1448.28 1476.36         
 Silver         23.860 -0.030  -0.1   23.700  24.070
 Platinum      1496.24  18.74   1.3  1483.00 1506.50
 Palladium      692.46  13.96   2.1   683.00  696.50
                                                              
 TOTAL MARKET              VOLUME          30-D ATM VOLATILITY
                CURRENT   30D AVG  250D AVG   CURRENT     CHG
 US Gold        178,471   222,388   177,610     19.99   -0.22
 US Silver       37,222    78,557    55,035     27.95    1.18
 US Platinum      7,718    13,266    11,888     19.68    0.25
 US Palladium     4,098     5,188     5,041                  
                                                              
    

 (Additional reporting by Lewa Pardomuan in Singapore; Editing
by Jane Baird, Andre Grenon and Bob Burgdorfer)
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