* Physical demand strong in India ahead of buying festival
* US March CPI data shows surprise drop in consumer prices
* Dollar firms to session highs versus the euro
(Recasts, updates with quotes, closing prices, adds NEW YORK
to dateline)
By Frank Tang and Jan Harvey
NEW YORK/LONDON, April 15 (Reuters) - Gold rose slightly on
Wednesday as strong physical demand from top bullion consumer
India offset worries from a surprise drop in U.S. consumer
inflation, which could dent the metal's allure as an inflation
hedge.
Gold demand in India, the world's largest bullion market,
firmed as traders stocked up ahead of the Hindu festival of
Akshaya Tritya on April 27. []
The dollar's nudge off highs against the euro also relieved
downward pressure on gold, which is often bought as an
alternative investment to the U.S. currency.
Spot gold <XAU=> was at $890.30 an ounce at 2:33 p.m. EDT
(1833 GMT), up 0.2 percent from its late Tuesday quote $888.85
in New York.
U.S. gold futures for June delivery <GCM9> settled up $1.50
at $893.50 an ounce on the COMEX division of the New York
Mercantile Exchange.
U.S. inflation data for March showed a dip of 0.1 percent
in the consumer price index, against expectations for a rise of
0.1 percent. Consumer prices recorded their first annual drop
since 1955. []
"Short term, these figures are obviously not bullish for
gold, but in the longer term you have to look past the current
fall in inflation," said Standard Bank analyst Walter de Wet.
The precious metal is often bought as a hedge against
rising inflation, and prices can be dented by deflationary
signals.
However, analysts said that gold should be supported by
inflation down the road because of massive economy stimulus
plans by central banks in a low interest-rate environment.
"Despite the weight of deflationary data in recent weeks,
concerns that quantitative easing and rising fiscal deficits
will stoke inflationary pressures remain an important source of
support for gold," James Steel, chief commodities analyst at
HSBC, said in a note.
On the foreign exchange markets, the dollar edged a touch
off the session highs it reached versus the euro but remained
stronger. []
A firmer dollar tends to weigh on gold, which is often
bought as an alternative investment to the U.S. currency.
Gold remains largely rangebound as buyers await clearer
signals on the outlook for the financial sector and the equity
markets. Any rise in risk aversion is likely to benefit gold.
FLAT ETF VOLUME SEEN BEARISH
Investment demand remains tentative, with holdings of the
world's largest gold-backed exchange-traded fund, the SPDR Gold
Trust <GLD>, unchanged since last Thursday.
"The volume in the gold ETF and in major gold shares was
waning even on rallies of spot gold bullion, which is always a
very bearish circumstance," Dennis Gartman, independent
investor, said in his daily Gartman Letter.
Among other precious metals, spot platinum <XPT=> was at
$1,211.00 an ounce, up 0.6 percent from its late Tuesday quote
of $1,204, while spot palladium <XPD=> was at $234.00 an ounce,
up 1.7 percent from its previous finish of $230.
The two metals are consolidating after gains that took them
to multi-month highs, after ETF Securities filed to register
the first ETFs backed by platinum and palladium in the U.S.
market.
Spot silver <XAG=> was at $12.76 an ounce, up 0.3 percent
from its previous finish of $12.72.
Rhodium <RHOD-LON>, used in autocatalysts, also climbed 9
percent, helped by gains in other platinum group metals and
amid hopes the downturn in the car industry may be bottoming
out. []
(Editing by Christian Wiessner)
