* Physical demand still expected to support market
* SPDR Gold holdings <XAUEXT-NYS-TT> steady
By Chikako Mogi
TOKYO, July 8 (Reuters) - Gold prices fell on Wednesday as
the dollar remained firm, sapping gold's appeal as an
alternative investment, and on easing inflation fears as oil
prices weakened.
Gold has been hurt by the dollar's strength as investors
have recently preferred the U.S. currency to bullion as a safe
store of value amid fears over the economic outlook.
Declining oil prices on growing uncertainty over an economic
recovery later in the year have eased worries about inflation and
hurt gold, which is widely perceived as a hedge against rising
prices.
But traders expected buying by major consumers including
India and other Asian countries to resume when prices fall
further, limiting the market's downside.
"At the moment, gold prices have been driven heavily by the
movement in the U.S. dollar, but if we get down towards $900, we
might see some opportunistic buying," said David Moore, a
commodities analyst at the Commonwealth Bank of Australia.
"Fabrication demand for gold has been relatively weak, but
there is an element of price sensitivity too, and demand for
gold is likely to strengthen if gold prices fall," he said.
Spot gold <XAU=> had fallen 0.3 percent to a low of $920.60
an ounce earlier before trading at $922.80 per ounce at 0536
GMT, down 0.1 percent from New York's notional close of $923.30.
U.S. gold futures for August delivery <GCQ9> fell 0.7
percent to $922.70 an ounce, compared with $929.10 an ounce on
the COMEX division of the New York Mercantile Exchange.
Traders said gold may be moving away from $1,000 but is also
likely to stay clear of key support near $880 per ounce for now,
given the lack of specific technical targets at the moment.
Traders said they were watching to see if gold would fall
below $910-$915, a recent low in the downtrend that began in
early June when the market failed to hit the $1,000 last touched
in February.
"There isn't really a clear technical target, just some
levels to observe where people remember it having spent some time
before rebounding," said Wakako Harada, a senior trader at
Mitsubishi Corp in Tokyo.
Doubts over whether the U.S. economy can recover in the
second half of 2009, whether U.S. "stress tests" of the financial
sector were really effective, whether deflation could be a bigger
risk than inflation, among other issues, will limit gold's
downside, she said.
"The more uncertainties, the higher the incentive to buy
gold. Ultimately gold is a hard asset with long-lasting value.
The fact that central banks hold gold as assets also bolsters
confidence in the metal," she said.
"I don't sense that money is leaving gold in a major way."
The yen hit its highest levels in more than six weeks against
the dollar and euro on Wednesday as traders bet that a recent
pullback in risk assets could provide the impetus for a further
rise in the Japanese currency. []
The market was eyeing comments on the dollar's role as the
global reserve currency at the Group of Eight leaders' meeting
starting on Wednesday. [] []
Oil fell towards $62 on Wednesday, on course for its sixth
consecutive day of falls and the longest losing streak since
mid-December, after data showed larger-than-expected builds in
U.S. products stocks, reflecting weak demand for oil. []
Investment in the world's largest gold-backed
exchange-traded fund, the SPDR Gold Trust <GLD>, remained
sluggish, with its holdings unchanged from the previous business
day at 1,120.19 tonnes as of July 7. []
Gold's relative strength index (RSI), a measure of whether
the metal is overbought or oversold, stood at around 39. The
market views an RSI of 30 or less as oversold and 70 or more as
overbought.
In other precious metals, platinum extended losses as the
market is in a downward technical trend after failing to keep
prices above $1,200. Spot platinum <XPT=> was at $1,105.50 an
ounce, down 2 percent.
Precious metals prices at 0548
Metal Last Change Pct chg YTD pct chg Turnover
Spot Gold 922.50 -0.80 -0.09 4.81
Spot Silver 13.07 -0.03 -0.23 15.46
Spot Platinum 1105.00 -27.00 -2.39 18.56
Spot Palladium 236.00 -3.00 -1.26 27.91
TOCOM Gold 2805.00 -34.00 -1.20 9.02 37074
TOCOM Platinum 3362.00 -157.00 -4.46 26.77 19139
TOCOM Silver 396.80 -8.40 -2.07 24.27 285
TOCOM Palladium 727.00 -16.00 -2.15 32.18 411
Euro/Dollar 1.3894
Dollar/Yen 94.23
