* Dollar recovers versus currency basket
* Physical demand still sluggish
(Updates prices, adds comment)
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 $922.65 an ounce at 1544 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 $1.20 to
$923.10 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, retreated to turn lower. []
"The pick-up in the dollar has put some pressure on gold
values today," said David Wilson, metals analyst at Societe
Generale. "All commodities are a little weaker, with oil off as
well (and) base metals prices still slipping too."
"Investment demand for gold has stalled, and that has been
the key support for gold for much of the first half," he added.
A stronger dollar reduces interest in gold as a currency
hedge, and makes the metal more expensive 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.
Among other precious metals, silver <XAG=> was at $13.13 an
ounce against $13.24. Platinum <XPT=> was at $1,131.50 an ounce
against $1,143, while palladium <XPD=> stood at $238.50 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 Peter Blackburn)
