* Gold may consolidate on possible short-term USD strength
* SPDR Gold holdings fall 1.22T, down for second straight day
By Chikako Mogi
TOKYO, Oct 28 (Reuters) - Gold prices steadied around $1,040
an ounce on Wednesday, staying above three-week lows hit the day
before when the dollar strengthened against the euro.
The dollar held gains against a basket of currencies on
Wednesday while the yen rose, as investors trimmed positions in
higher-yielding currencies as stocks fell on weaker-than-expected
U.S. consumer confidence figures.
The euro moved away from 14-month highs hit against the
dollar on Monday as investors also pared euro long positions on
the view that the pace of its recent rise had been too fast.
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Dollar weakness was the main driver for gold's rally when
bullion rose above $1,072 to a record earlier this month, as a
drop in the dollar makes bullion less expensive for non-dollar
holders. Gold is also preferred as a hedge against inflation as
well as a depreciating dollar.
Traders and analysts said that given the rapid rise in gold
prices, a pause in its rally was sensible, but the expected
continuation of dollar weakness will also likely offer firm
support around $1,000.
"I think the negative correlation (between gold and the
dollar) will continue," said David Barclay, commodity strategist
at Standard Chartered in Hong Kong.
"There is the potential for a short period of dollar strength
and subsequent consolidation for gold, but this will be temporary
as we see the euro/dollar at $1.55 by year end," he said.
Spot gold <XAU=> was almost flat at $1,038.70 an ounce as of
0551 GMT compared with New York's notional close of $1,038.80.
Gold hit a three-week low of $1,032.25 on Tuesday.
As noncommercial net long futures positions stayed near
record highs, profit-taking could cause a little correction to
the gold market, but it would be a "healthy development," Barclay
said, adding that even if the market fell further, it would still
be in a strong technical uptrend with support around $1,000.
U.S. gold futures for December delivery <GCZ9> were up 0.4
percent at $1,039.60 an ounce, compared with $1,035.40 on the
COMEX division of NYMEX.
Gold futures fell to a three-week low of $1,032.9 on Tuesday
to find support just above $1,030 an ounce, the long-standing
record high they passed on Oct. 6.
Barclay said he did not believe news of financial distress
would benefit gold as it did in the first three months of 2009.
"What's driving gold now is liquidity driven moves higher in
risky assets which are weighing on the dollar and creating
concerns over future inflation," he said.
With the market consolidating, holdings at the world's
largest gold-backed exchange-traded fund, the SPDR Gold Trust
<GLD>, fell to 1,105.654 tonnes as of Oct. 27, down 1.22 tonnes
or 0.1 percent from the previous business day. It was the second
consecutive day of declines. []
Weakness in gold weighed on other precious metals on Tuesday,
with spot silver <XAG=> falling to a three-week low of $16.47.
Silver was at $16.64 on Wednesday.
Platinum <XPT=> also touched a three-week low of $1,305.50 an
ounce on Tuesday, and traded at $1,315.50 on Wednesday.
Precious metals prices at 0558 GMT
Metal Last Change Pct chg YTD pct chg Turnover
Spot Gold 1039.05 0.25 +0.02 18.05
Spot Silver 16.64 -0.01 -0.06 47.00
Spot Platinum 1315.50 3.50 +0.27 41.15
Spot Palladium 327.00 1.50 +0.46 77.24
Euro/Dollar 1.4819
Dollar/Yen 91.24
TOCOM prices in yen per gram, except TOCOM silver which is
priced in yen per 10 grams. Spot prices in $ per ounce.
(Additional reporting by Risa Maeda; Editing by Chris Gallagher)
