* Dollar firms amid caution ahead of next week's Fed meet
* Coming up: U.S. third-quarter GDP data at 1230 GMT
* Palladium rallies to highest since May 2001
(Updates prices, adds comment)
By Jan Harvey
LONDON, Oct 29 (Reuters) - Gold eased in Europe on Friday as
the dollar firmed amid caution ahead of a U.S. Federal Reserve
policy meeting next week, while palladium hit its highest in
9-1/2 years on expectations for a tightening market balance.
The Fed is expected to discuss the prospect of further U.S.
monetary easing at the meeting starting on Tuesday, which could
have a major impact on the dollar and inflation expectations,
both of which are likely to prove significant for gold.
Spot gold <XAU=> was bid at $1,340.25 an ounce at 1120 GMT,
against $1,343.35 late in New York on Thursday. U.S. gold
futures for December delivery <GCZ0> fell $1.60 to $1,340.90.
"The Fed meeting next week has been dominating the markets,"
said Standard Bank analyst Walter de Wet. "Ahead of that, people
have positioned themselves, and from an investment perspective
they are not going to add too much more gold.
"We think the gold market has priced in around a $500
billion QE exercise by the Fed," he added. "If the Fed comes out
with a higher figure, we think gold will move higher. If it's
lower, it is going to be bearish for gold."
The dollar rose 0.3 percent against a basket of currencies
<.DXY> and 0.5 percent against the euro in midday European
trade, helping keep a lid on gold, as traders looked ahead to
the Fed and U.S. third-quarter GDP data due at 1230 GMT. []
The GDP report is expected to show the world's biggest
economy grew 2.0 percent in the third quarter.
"If the figure comes in considerably better than 2 percent,
we could well see a dollar bounce on expectations of a reduced
stimulus package next week," said CMC Markets in a note.
"A poor figure -- then expect the dollar to fall quite
quickly, especially against the yen."
INDIAN BUYERS TURN COY
Indian gold buying retreated on Friday after a 1.4 percent
rise in spot prices in the previous session as most traders
waited for a dip to stock up in the run-up to Dhanteras and
Diwali next week, dealers said. []
"There are many jewellers who are enquiring and waiting to
book," said one dealer with a private gold-importing bank. "I
have advanced orders below $1,340."
Traders say the physical market has been a good support for
prices in recent weeks following gold's correction from record
highs at $1,387.10 an ounce, with buying in India in particular
relatively healthy after a sharp drop last year.
Meanwhile Hong Kong trade data showed the flow of gold from
Hong Kong to China in the first eight months of 2010 was nearly
double that for the whole of 2009, suggesting that appetite for
jewellery and investment purposes is rocketing. []
On the investment side, holdings of the world's largest
gold-backed exchange-traded fund, New York's SPDR Gold Trust
<GLD>, dipped by just over 5 tonnes on Thursday, bringing its
total outflows in October so far to 11.7 tonnes. []
"The World Gold Council reported a fall in investment demand
virtually across the board in the third quarter," Commerzbank
said in a note. "This is probably due to the high gold prices in
this period, which have evidently had an impact on investors."
Elsewhere palladium <XPD=> rose to a peak of $637.55 an
ounce, its highest since May 2001. Spot palladium was later at
$634.30 against $622.99.
"Already palladium is in deficit; it will be in deficit next
year," said de Wet. "China auto sales are very strong, and
certainly we think there is buying in anticipation of a seasonal
upturn in auto sales, typically from now until March.
"Swiss customs data for the past five or six months has
shown metal has flowed out of Zurich vaults, which shows you
there is still demand even at these prices," he added
Spot platinum <XPT=> was at $1,692.67 an ounce against
$1,688, while silver <XAG=> was at $23.90 against $23.97.
(Reporting by Jan Harvey; editing by Jane Baird)
