* Dollar recovers from lows versus euro, equities slip
* China says gold won't be major part of currency reserves
* Indian buyers rush to buy gold after price fall
(Updates, adds comment, changes dateline from SINGAPORE)
By Jan Harvey
LONDON, July 7 (Reuters) - Gold eased in Europe on
Wednesday, extending the last session's losses, as the dollar
recovered from six-week lows, and as a report that China would
not make gold a major part of its reserves undermined sentiment.
Physical interest in the metal at lower prices and strong
chart support after its recent correction were likely to limit
further losses, analysts said.
Spot gold <XAU=> was bid at $1,187.90 an ounce at 0923 GMT,
against $1,191.50 late in New York on Tuesday. U.S. gold futures
for August delivery <GCQ0> eased $6.90 an ounce to $1,188.20.
The precious metal slipped to a session low of $1,186.95,
its weakest since late May, in earlier trade after China's State
Administration of Foreign Exchange said gold will not become a
major component of the central bank's portfolio. []
Official sector interest in gold, which has seen a number of
particularly Asian central banks increase their reserves and
European banks hold off selling the metal in the last year, has
been a major support to its run higher in that period.
However, analysts said given the size of China's currency
reserves, it was unsurprising gold would play only a relatively
minor role in its portfolio, and that the news was unlikely to
detract from central bank interest in gold if prices fell.
"China has $2 trillion in currency reserves, so it is simply
not possible for them to invest a major part of this in gold --
the gold isn't there," said Commerzbank analyst Daniel
Briesemann.
"I am convinced they will increase their gold holdings if
prices fall further. I don't expect gold to fall below $1,000,
but if that happened... China would step in and buy gold."
He said concerns over the economic outlook after a raft of
soft U.S. economic data was likely to keep gold well-bid,
however. "Over the mid to long term, gold should be very well
supported," he said.
On the wider markets, European stocks fell at the open after
macroeconomic data from the United States pointed to a sluggish
economic recovery, following on from a weak session among Asian
stocks. [] []
The dollar firmed as the euro slipped on renewed concerns
about the euro zone banking system and the strength of global
economic recovery. []
The usual inverse link between gold and the dollar weakened
earlier this year as both benefited from risk aversion, but
strength in the U.S. unit usually makes dollar-priced
commodities more expensive for holders of other currencies.
SUPPORT SEEN AT $1,180/OZ
The market was likely to find good technical support around
the $1,180 an ounce area, analysts said, with gold's longer-term
uptrend likely to resume once the correction had run its course.
"With daily momentum oscillators posting their first
oversold readings since March, we look for renewed signs of
basing ahead of resumption of the cyclical bulltrend, which is
still very much intact," said Barclays Capital in a note.
"Bulls need to regain the 21-day averages at 997/1,231 (in
euro and dollar terms, respectively) to regain control."
In New York, holdings of the world's largest gold-backed
exchange-traded fund, New York's SPDR Gold Trust <GLD>, dipped
further on Tuesday to 1,316.481 tonnes. []
The SPDR's holdings have fallen 3.955 tonnes from a record
1,320.436 tonnes at the end of June, against a rise of 18.429
tonnes in the same period of the previous month.
But Indian jewellers rushed to replenish gold stocks ahead
of religious festivals, and other physical buyers in Asia
snapped up bullion after prices fell. []
Among other precious metals, silver <XAG=> was bid at $17.62
an ounce versus $17.78, while platinum <XPT=> at $1,494 an ounce
against $1,512.50, and palladium <XPD=> at $428.88 versus $435.
(Reporting by Jan Harvey; Editing by William Hardy)
