* Dollar pares losses but direction weak
* Traders eye U.S. CPI data due at 1230 GMT
* iShares Silver ETF hits record levels
(Updates throughout, changes dateline from TOKYO)
By Jan Harvey
LONDON, June 17 (Reuters) - Gold steadied in Europe on
Wednesday, rolling back some earlier gains as the dollar pared
losses against a basket of currencies, with traders awaiting
direction from U.S. inflation data due later in the session.
The market is awaiting the May CPI numbers for their effect
on the dollar, and also because fears over the prospect of
rising inflation are a key support for the precious metal.
Spot gold <XAU=> was bid at $933.50 an ounce at 0913 GMT,
against $934.10 an ounce late in New York on Tuesday. Earlier it
touched a high of $937.90.
"Gold is almost 100 percent inversely correlated to the
dollar right now," VTB Capital analyst Andrey Kryuchenkov said.
The metal has fallen nearly 5 percent in the last fortnight
as the U.S. unit rose, with investors buying the currency as a
haven from risk amid fears the stock market recovery was
overdone. []
But questions over its reserve currency status have since
knocked the dollar. The U.S. CPI data due later in the session
will be closely watched as an indicator of the unit's next
direction.
The inflation reading will also impact gold in its own
right, as bullion is often bought as a hedge against rising
prices. "We are still in a deflationary phase... (but) in the
long run obviously there will be inflation," said Kryuchenkov.
"Inflationary expectations have been on the rise and that
affects the dollar trade, and that in turn obviously works on
gold."
A softer dollar boosts interest in gold as an alternative
asset, while all dollar-priced commodities become cheaper for
holders of other currencies as the U.S. unit falls.
RESTORED
Gold's typically close inverse relationship with the dollar
has been restored of late. Earlier this year bullion's
relationship with stock markets was a more important indicator
of trade, as risk aversion took precedence over other factors.
European shares fell on Wednesday, tracking earlier losses
in Asia amid doubts about a global economic recovery. []
[]
On other markets, oil prices were little changed at just
above $70 a barrel, as traders awaited weekly U.S. inventory
data. Gold often tracks oil, a key inflation indicator. []
Among other precious metals, silver <XAG=> was at $14.14 an
ounce against $14.17, largely tracking moves in gold.
The world's largest silver-backed exchange-traded fund, the
iShares Silver Trust <SLV>, said its holdings rose 1.4 percent
to a record on Tuesday. []
"The increase in ETF holdings yesterday suggests investors
may looks to silver as a cheaper alternative to gold, but for
now, the metal should consolidate in the $13.90-14.65 area,"
said James Moore, an analyst at TheBullionDesk.com.
Platinum <XPT=> was at $1,207 an ounce against $1,215, while
palladium <XPD=> was at $242 against $240.
(Editing by Sue Thomas)
