* Dollar recovers versus currency basket
* Physical demand still sluggish
(Releads, updates prices)
By Jan Harvey
LONDON, July 7 (Reuters) - Gold steadied on Tuesday, erasing
earlier gains, as the dollar recovered lost ground against a
basket of currencies, reducing the precious metal's appeal as an
alternative asset.
Traders are awaiting fresh direction from the foreign
exchange markets after a meeting of G8 leaders later this week.
Spot gold <XAU=> was bid at $923.70 an ounce at 1347 GMT,
against $924.00 an ounce late in New York on Monday, having
earlier touched a high of $931.55.
U.S. gold futures for August delivery <GCQ9> on the COMEX
division of the New York Mercantile Exchange eased 40 cents to
$923.90 an ounce.
With physical demand sluggish despite a price dip, the gold
market is largely being driven by currency moves, traders said.
The precious metal edged lower on Tuesday as the dollar
<.DXY> recovered earlier losses against a basket of currencies.
The euro, which was earlier lifted by better-than-expected
German factory orders, quickly retreated from highs. []
"(There is) very little upside momentum for the euro or
gold," said Tom Kendall, precious metals strategist at
Mitsubishi Corp.
A weaker dollar boosts interest in gold as a currency hedge,
and makes the metal cheaper for holders of other currencies.
The market is looking for any comments on the dollar's role
as the global reserve currency at the Group of Eight leaders'
meeting starting on Wednesday, which could impact on the foreign
exchange markets and consequently on gold.
"We have the G8 this week where there is potential for some
discussion about the reserve currency... which could have an
impact on the currency markets and indirectly on the (gold)
price," said Simon Weeks, director of precious metals at the
Bank of Nova Scotia.
WEAKER
Technically, the picture is looking weaker, with gold's
trade down through the 100-day moving average opening up the
potential for a move down to $915, Weeks added.
Investment demand remained relatively soft, with holdings of
the largest gold-backed exchange-traded fund, the SPDR Gold
Trust <GLD>, falling 0.36 tonnes on Monday. []
Switzerland's Zurich Cantonal Bank, however, reported modest
inflows into its gold and silver ETFs last week. []
Physical demand for bullion bars has improved slightly in
the last week or so, dealers say, but is far from its peak.
"We have seen a bit more demand from investors, starting
last week, for investment bars," said Wolfgang
Wrzesniok-Rossbach, head of sales at precious metals trading
house Heraeus.
"But we are far from a situation seen in the winter when we
had delivery periods for most bar types."
Among other precious metals, silver <XAG=> was at $13.18 an
ounce against $13.24. Platinum <XPT=> was at $1,138.50 an ounce
against $1,143, while palladium <XPD=> stood at $240.50 against
$239.
Both platinum group metals have suffered from the downturn
in the car industry, their main consumer. Any sign of a recovery
in the sector could trigger a turnaround, analysts said.
(Editing by James Jukwey)
