* Crude oil slips lower after historic one-day surge
* Dollar regains lost ground against the euro
* SPDR Gold Trust bullion holdings hit record
(Updates with quotes, closing price, market activity)
By Jan Harvey
LONDON, Sept 23 (Reuters) - Gold dropped on Tuesday as sharply
lower oil prices and a firmer dollar prompted investors to cash in
the previous session's solid gains.
But with concerns remaining over the impact of the U.S.
government's proposed $700 bailout of the financial system, analysts
said gold could be poised to trend higher.
Spot gold <XAU=> was at $889.75/892.75 an ounce at 3:05 p.m. EDT
(1905 GMT), down 1.2 percent from gold's nominal Monday close of
$900.20.
U.S. gold futures for December delivery <GCZ8> settled down
$17.80, or 2 percent, at $891.20 an ounce on the COMEX division of
the New York Mercantile Exchange.
Commerzbank analyst Barbara Lambrecht said a combination of
profit taking and a firmer tone to the dollar was "putting pressure
on gold."
She added, however: "We think prices are well supported by
physical demand and by risk aversion, as people go into gold as a
safe haven."
While investors are taking the opportunity to book profits,
bullion is likely to trend higher once again if the market remains
volatile and the dollar fails to recover.
"Despite its high volatility, gold's safe haven qualities are
clearly attractive to investors, particularly in light of expected
weakness of the U.S. dollar," Fairfax analyst John Meyer said.
The dollar fell against the euro after the previous session's
record one-day loss versus the common currency. []
Earlier in the day, the U.S. currency reached session highs
against the euro after contracting euro zone manufacturing activity
focused attention on weakness in the euro area.
Gold's losses have mirrored those of crude oil, which slipped
more than $2 a barrel on Tuesday after a record one-day rise in
dollar terms in the previous session. []
"Yesterday's chaotic trading in the expiring (front-month) crude
futures drew people prematurely into the gold market," said FC Stone
commodity broker George Nickas.
Nickas said that, in the longer run, the dollar's strength would
ultimately be the main driver for the gold market.
Pricier crude tends to benefit gold because the precious metal
is bought as a hedge against oil-led inflation. Rising oil prices
also boost confidence in commodities as a whole.
ETF HOLDINGS HIT RECORD
Investment demand has been strong. The world's largest
gold-backed exchange-traded fund, the SPDR Gold Trust <GLD>, saw a
30.2-inflow on Monday that brought its gold holdings to a record
709.62 tonnes. []
Buying for ETFs, which issue securities backed by physical
bullion, represents a major source of demand for gold.
"We have seen a strong inflow into ETFs, which was a little
sluggish in the weeks before," said Commerzbank's Lambrecht.
"Investment demand should give good support to gold."
UBS lifted its short-term forecasts for gold on Tuesday, citing
safe-haven buying and a weaker outlook for the dollar.
[]
The bank said it was increasing its one-month forecast for spot
gold to $925 an ounce from $850 previously, and it raised its
three-month forecast to $975 from $900.
Silver tracked gold lower, slipping 2.5 percent to a session low
of $13.07 an ounce. Spot silver <XAG=> was last quoted at
$13.24/13.32 an ounce, down 1.2 percent against $13.40 on Monday.
Among other precious metals, spot platinum <XPT=> was trading at
$1,206/1,226 an ounce against $1,244.50, while palladium <XPD=> fell
to $245.50/253.50 from its Monday nominal close of $253.50.
"Both metals have lagged the moves in gold and silver, which
makes sense in an environment where risk aversion is a key driver to
the precious metals complex," said UBS analyst John Reade.
(Editing by Marguerita Choy)
