* Dollar hits session highs vs the euro after Chicago PMI
* SPDR gold ETF reports near 1-tonne inflow
* Palladium prices reach highest since July 2008
(Updates prices, adds comment)
By Jan Harvey
LONDON, Dec 30 (Reuters) - Gold slipped 1 percent in Europe
on Wednesday as the dollar hit session highs versus the euro
after data showed business activity in the U.S. midwest expanded
far more than expected in December.
Trading in Europe, the United States and some parts of Asia
was thinned by the Christmas and New Year holidays, with many
market participants away until Jan. 4.
Spot gold <XAU=> hit a low of $1,085.90 an ounce and was bid
at $1,088.15 an ounce at 1513 GMT, against $1,096.55 late in New
York on Tuesday.
"Technically it looks like there is some more space on the
downside," said Michael Kempinski, a senior trader at
Commerzbank. "It is difficult to say what is going to happen
tomorrow, because the market is very thin."
"The euro is weakening a bit and the dollar is bouncing
back, so that is putting some pressure on gold," he added.
Strength in the U.S. currency cuts gold's appeal as an
alternative asset and makes dollar-priced commodities more
expensive for holders of other currencies.
The dollar extended gains against the euro to session highs
in midafternoon trade after the Chicago Institute for Supply
Management said its index of midwest business activity rose in
December to its highest since January 2006. []
Going into the new year, currency traders are focusing on
when the U.S. Federal Reserve is likely to start tightening
monetary policy.
A spate of better-than-expected data in recent weeks has
lifted expectations a rate rise may come sooner rather than
later. If rates are lifted, it is likely to benefit the dollar,
and consequently weigh on gold.
The precious metal's decline is taking spot prices further
from the record high of $1,226.10 an ounce they hit at the
beginning of December after a wave of central bank gold buying.
PRICES PRESSURED
"The bear pressure is certainly on the market now and the
stronger dollar is curbing any recovery attempts by gold," said
Pradeep Unni, senior analyst at Richcomm Global Services.
"The number of long speculators is slowly and steadily
fading off and formidable resistances at the $1,107-1,110 zones
are repeatedly being used as selling opportunities."
"Despite the low trading activity, a possible slide to
$1,080-1,072 seems more likely in the coming sessions," he said.
U.S. gold futures for February delivery <GCG0> on the COMEX
division of the New York Mercantile Exchange fell $9.30 to
$1,088.80 an ounce.
Among other commodities, oil prices steadied near $79 a
barrel as a decline in U.S. fuel stocks and optimism over the
economic outlook countered the effects of the stronger dollar.
[] []
Gold tends to track crude prices, as the metal can be bought
as a hedge against oil-led inflation.
Investment demand for gold was firm, with the world's
largest bullion-backed exchange-traded fund, New York's SPDR
Gold Trust <GLD> reporting an inflow of just under one tonne on
Tuesday. []
Among other precious metals, silver <XAG=> was at $16.80 an
ounce against $17.08, while platinum <XPT=> was at $1,450 an
ounce versus $1,462.
Palladium <XPD=> hit a peak of $393 an ounce, its highest
since July 2008, and was later at $390.50 against $385.50. This
was largely due to rising investment demand, analysts said.
"In the case of palladium the speculative positions on the
forward-exchanges have gone up by 900,000 ounces this year,"
said precious metals house Heraeus in a note.
"This explains the price development."
(Reporting by Jan Harvey; Editing by Anthony Barker)
