* Gold pummeled by dollar rally, China's bank tightening
* Strong buying interest keeps bullion from losing further
* Platinum ETF launch effect offset by stronger dollar
(Recasts, updates comments, closing prices, market
activity, adds NEW YORK to dateline)
By Frank Tang and Veronica Brown
NEW YORK/LONDON, Jan 20 (Reuters) - Gold hit a two-week low
on Wednesday, losing over 2 percent as a resurgent dollar and
China's tightening bank lending decreased bullion's appeal as a
hedge against both inflation and currency depreciation.
Analysts said the fact that gold did not fall further
showed strong underlying investor interest, and fresh buying
could reemerge after a healthy price pullback.
News that China's raising bank reserve ratio has triggered
flight-to-quality buying into the dollar, prompting commodities
investors to sell after prices had overshot due to economic
optimism, said Adam Klopfenstein, senior market strategist at
Lind-Waldock in Chicago.
"Even if gold goes to a one- or two-day market correction,
there is still a lot of pent-up demand in gold. People are
going to look at these dips as buying opportunities," he said.
Spot gold <XAU=> hit a low of $1,107.80 an ounce, the
weakest since Jan. 4. It was last at $1,113 an ounce at 2:21
p.m. EST (1921 GMT), down from $1,137.95 quoted late in New
York on Tuesday.
U.S. gold futures for February delivery <GCG0> settled down
$27.40, or 2.4 percent, at $1,122.60 on the COMEX division of
the NYMEX.
External headwinds were gathering for world markets, with
Chinese banking authorities instructing some major banks to
stop new lending for the rest of January after loan growth
surged in the first few weeks of the year. []
Even after gold futures broke below key support under its
14- and 50-day moving averages, they ended off session lows,
which is a positive technical indicator, Klopfenstein said.
Gold prices were also pummeled as the U.S. currency hit
five-month highs against the euro <EUR=> on heightened concerns
about Greece's ability to finance its budget deficit. []
The dollar, which usually moves in opposition direction to
bullion, also rallied on expectations that the election of a
Republican to a U.S. Senate seat might see the government rein
in spending and cut the fiscal deficit. []
Commerzbank analyst Eugen Weinberg said that gold is
expected to test a low of $1,000 an ounce by the second quarter
due to weak jewelry demand, but could rise toward $1,200 in the
second half of this year because of its role as a hedge against
market risk.
PLATINUM TAKES GOLD'S LEAD
Platinum prices also retreated, falling from a 17-month
peak earlier in the session, with positive sentiment from the
recent launch of new exchange-traded funds overrun by a
resurgent dollar.
Spot platinum <XPT=> rose as high as $1,654, a level last
seen in August 2008, but the dollar's strength pulled prices
back to a last quote of $1,627.50, down from $1,643 late in New
York on Tuesday. It traded as low as $1,592.50 earlier in the
session.
A U.S. subsidiary of London's ETF Securities launched
platinum and palladium exchange-traded funds earlier this
month, and metals uptake by both funds has been healthy.
Holdings of ETFS Physical Platinum Trust <PPLT> rose to
144,924 ounces on Tuesday from 119,941 ounces on Monday, while
ETFS Physical Palladium Trust <PALL> also climbed to 194,977
ounce from 124,897 ounces during the same period.
"We still see decent support for platinum and we can't see
anything that should see massive selling. Mainly it's the ETFs
but also from possible supply problems in South Africa," said
Walter de Wet, an analyst at Standard Bank in London.
Platinum's sister metal palladium <XPD=> rebounded on
bargain hunting, and was last at $465.50, up from $464.50 late
in New York on Tuesday.
Spot silver <XAG=> followed gold's lead, falling to $17.90
per ounce, down from $18.73 an ounce late in New York on
Tuesday.
Close Change Pct 2009 YTD
Chg Close % Chg
US gold <GCG0> 1112.60 -27.4 -2.4 1096.20 1.5
US silver <SIH0> 17.880 -0.920 -4.9 16.845 6.1
US platinum <PLF0> 1611.10 -24.00 -1.5 1471.00 9.5
US palladium <PAH0> 462.05 0.10 0.0 408.85 13.0
Prices at 2:21 p.m. EST (1920 GMT)
Gold <XAU=> 1113.25 -24.70 -2.2 1096.35 1.5
Silver <XAG=> 17.91 -0.82 -4.4 16.84 6.4
Platinum <XPT=> 1623.00 -20.00 -1.2 1465.50 10.7
Palladium <XPD=> 464.00 0.000 0.0 405.50 14.4
Gold Fix <XAUFIX=> 1120.25 -8.75 -0.8 1104 1.5
Silver Fix <XAGFIX=> 18.48 -2.00 -0.1 16.99 8.8
Platinum Fix <XPTFIX=> 1627.00 12.00 0.7 1466 11.0
Palladium Fix<XPDFIX=> 457.00 3.00 0.7 402 13.7
(Additional reporting by Miho Yoshikawa in Tokyo and Michael
Taylor in London; Editing by Marguerita Choy)
