* Gold extends decline for fourth day in a row
* Dollar firms versus euro after raft of upbeat data
* Markets eye key December U.S. payrolls data due Friday
(Updates throughout, changes dateline, pvs SINGAPORE)
By Jan Harvey
LONDON, Jan 6 (Reuters) - Gold prices slipped in Europe on
Thursday for a fourth successive session as the dollar firmed
versus the euro and risk appetite improved after a raft of
better-than-expected U.S. data.
Spot gold <XAU=> was bid at $1,376.60 an ounce at 0954 GMT,
against $1,377.65 late in New York on Wednesday. U.S. gold
futures for February delivery <GCG1> fell $3.10 to $1,376.60.
A string of robust U.S. data have driven the dollar higher
on expectations the United States may recover faster than other
major economies. The numbers have raised expectations that a key
payrolls report on Friday will be positive. []
The well received data has pressured gold via the dollar and
also because it both undermines the metal's appeal as a haven
from risk and raises the prospect of tighter monetary policy.
"The market is a bit worried that if this continues, the
justification for monetary accommodation goes away and the
potential for interest rates rising becomes greater," said
Deutsche Bank analyst Daniel Brebner.
"If you have higher interest rates, that removes one of the
supports for gold," he added.
Given that gold is a non-interest bearing asset, the
opportunity cost of holding it falls when rates are low.
"That is creating some pressure in that market, but I think
it is very unlikely to be sustained," said Brebner. "Ultimately
the risk of higher interest rates this year is very, very low.
There are still lots of risks to growth."
European shares benefited from the U.S. employment figures,
rising 0.5 percent, while German government bonds, which are
often seen as a safe-haven asset, fell. [] []
The Frankfurt equity volatility index, the VDAX <.VIXI>,
eased by 2 percent, also indicating that risk appetite is
improving.
Meanwhile other commodities held steady. Oil prices held
above $90 an ounce, recovering from a mid-week slump, while
copper and other base metals firmed a touch. [] []
HEALTHY CORRECTION
From a technical perspective, gold's correction from the
record high it hit in December is seen as potentially healthy.
"We are happy that gold is unwinding from overbought
momentum conditions as it allows for further longer-term upside
progression, in line with our underlying bullish view," said
Barclays Capital in a note.
"We would look to build long positions in the $1,360 area
... in anticipation of gains through the $1,432 all-time high to
our initial upside targets at $1,460/1,480 ... Below the
$1,350/1,340 area would force us to reconsider our near-term
positioning."
Investment demand for gold-backed exchange-traded funds
remained lacklustre, with holdings of the world's largest gold
ETF, New York's SPDR Gold Trust <GLD>, dropping by nearly 4
tonnes on Wednesday to their lowest in early June. []
Although the appetite for gold as a safe store of value is
likely to remain supported by concerns over euro zone debt
levels, the U.S. deficit and potentially strong inflation in
emerging markets, the precious metal could be at risk of
extending its short-term correction.
"Market sentiment is shaken, and next week's rebalancing of
the commodity index looms large; how much is already priced in
is up for debate," said UBS in a note.
"Silver will be one of the biggest losers in the index
rebalancing, but commodity contagion has caused the other
precious metals to suffer."
"In the midst of a short-term commodity depression, a
stronger dollar and, more importantly, growing conviction in the
U.S. recovery as macro data improves, gold is struggling to
assert itself," UBS added.
Among other precious metals, silver <XAG=> was at $29.33 an
ounce against $29.24, platinum <XPT=> was at $1,731.99 an ounce
versus $1,726.50 and palladium <XPD=> at $769.47 against $773.
(Reporting by Jan Harvey; Editing by Jane Baird)
