* World Gold Council says gold demand fell 9 pct in Q2
* Dollar strengthens, equities dip after Chinese stocks fall
* Silver slips to 3-week low as base metals slide
(Updates prices, adds silver slippage)
By Jan Harvey
LONDON, Aug 19 (Reuters) - Gold prices eased below $935 an
ounce in Europe on Wednesday as the dollar firmed, denting
interest in bullion as a currency hedge, while fears about
underlying demand for the precious metal resurfaced.
Spot gold <XAU=> was bid at $933.60 an ounce at 1102 GMT,
against $937.30 an ounce late in New York on Tuesday. U.S. gold
futures for December delivery <GCZ9> on the COMEX division of
the New York Mercantile Exchange fell $3.20 to $936 an ounce.
The World Gold Council said gold demand fell 9 percent in
the second quarter on persistant weakness in jewellery buying,
as the recession weighed on consumer sentiment and high prices
put off purchasers. []
Prices holding firm above $900 an ounce suggested areas of
demand not identified in the report -- from investors in the
COMEX futures market, for example -- firmly underpinned the
market, analysts said.
"The strong correlation between the gold price and the U.S.
dollar is pointing to these investors making up most of
unidentifiable demand," said Commerzbank analyst Eugen Weinberg.
Weinberg said while in the longer run he believed inflation
and dollar weakness would support gold buying, in the short term
he felt prices were vulnerable to a correction.
"The dollar is becoming a bit stronger, equities are
holding, gold demand has fallen to a six-year low and the SPDR
gold trust is experiencing outflows," he said. "Why would I buy
(gold)?"
The dollar and the yen both rose on Wednesday after a sharp
drop in Chinese shares prompted investors to shy away from
currencies seen as higher risk. []
Crude prices also eased a touch after the previous session's
gains, putting more pressure on gold, which often benefits from
strength in oil as a sign of coming inflation. []
PERSISTENT DOUBTS
European shares fell in early trade after a sharp fall in
China's stock market, while U.S. stock futures pointed to a
lower opening on Wall Street. [] [] []
The fears weighed on the more industrial precious metals --
platinum, palladium and silver -- which are often influenced by
economic strength or weakness as an indicator of demand.
Silver, which is widely used in electronics manufacturing,
slid more than 2 percent to a near three-week low of $13.52 an
ounce as base metals slid, pressured by losses in Asia. It was
later at $13.60 an ounce against $13.96.
Silver's correlation with copper reached 0.98 this week --
with 1 a perfect correlation -- while its correlation with gold
is at 0.93.
"Silver... has traded lower this morning as gold comes under
pressure and copper is down over 2 percent," said
TheBullionDesk.com analyst James Moore.
"The metal will again look to gold as well as base metals
for direction, but a failure to hold above the 100 & 40 day
moving averages ($13.77/13.79) could see a deeper pullback to
the $13.20 area."
Latin American silver producer Hochschild Mining <HOCM.L>
said its production rose to a record 13.9 ounces in the first
half of the year, and said it sees silver prices at $13-15 an
ounce for the rest of the year. []
Platinum <XPT=> was at $1,217.50 an ounce against $1,228,
while palladium <XPD=> was at $268.50 against $271.
(Reporting by Jan Harvey; Editing by Peter Blackburn)
