* Gold rallies after initial weakness as dollar slides
* SPDR gold ETF holdings ease; investment demand weak
* Market eyes FOMC meeting for clues on fiscal policy
(Releads with New York closing, adds NEW YORK to dateline, adds
to byline)
By Frank Tang and Veronica Brown
NEW YORK/LONDON, June 23 (Reuters) - Gold futures rose above
$920 an ounce on Tuesday, after hitting a six-week low earlier in
the session, with currency fundamentals proving the dominant factor
as the dollar was hit by concerns over U.S. indebtedness.
Traders said that bullion prices, after hitting three-month
highs recently, just shy of $1,000 an ounce, were due for the falls
seen in recent days as speculators cleared out stale long positions
and as inflation expectations were easing.
However, the metal's role as a hedge against jittery sentiment
in other asset classes proved supportive, with investors shifting
into risk-averse gear as they waited for clues on fiscal policy from
the U.S. Federal Reserve.
U.S. August gold futures <GCQ9> settled up $3.30 at $924.30 an
ounce on the COMEX division of the New York Mercantile Exchange.
Spot gold <XAU=> was at 924.20 per ounce by 2:09 p.m. EDT (1809
GMT), against its previous finish of $921.90. Bullion hit a six-week
low at $912.90 during the Asian trading hours.
"We are seeing quite a lot of nervousness in the market," said
James Moore, analyst at TheBullionDesk.com.
"There are a lot of concerns about the long term impact of
quantitative easing, and until we see a clear indication as to the
Fed's stance on fiscal policy, it will be a bit of a game of
wait-and-see," Moore said.
Concerns about reserve diversification away from U.S. assets
caused the dollar to turn lower against the euro ahead of the
Federal Reserve's monthly meeting, after Moody's said one risk to
the U.S.' triple-A rating is if the dollar is challenged as the main
reserve currency. [].
The dollar fell against the euro on speculation the Federal
Reserve may lower expectations of an interest rate rise when it
concludes its meeting on Wednesday.
A $40 billion auction of two-year Treasury notes on Tuesday saw
a high yield of 1.151 percent, the highest since November with
strong demand. []
However, low demand for remaining auctions will raise concerns
about how the U.S. will finance its huge deficits.
A weaker dollar makes metals and other commodities priced in the
U.S. unit cheaper for non-U.S. investors.
George Nickas, commodities broker at FC Stone, said that bullion
investors who were looking for value stepped into the market after
gold tumbled 2 percent on Monday. He added that gold's positive
fundamentals were not dampened by the dollar's sudden strength
recently.
INVESTOR CAUTION
Overall investor caution was stirred by the World Bank on
Monday, which said prospects for the global economy remained
"unusually uncertain" as it cut 2009 growth forecasts for most
economies.
The world's largest gold-backed exchange-traded fund, the SPDR
Gold Trust <GLD>, said its holdings fell to 1,131.24 tonnes as of
June 22, down 0.91 tonnes from the previous business day.
[]
It was the first change in the holdings since June 5. The
holdings hit a record 1,134.03 tonnes earlier in the month.
In mining news, a spokesman of Freeport-McMoRan Copper & Gold
Inc's <FCX.N> said that it Grasberg gold and copper mine was
unaffected by the 6.7 magnitude quake that struck off the Papua New
Guinea's island of New Ireland. []
In other metals, silver was at $13.85 <XAG=>, up from $13.72
quoted late in New York on Monday. Platinum <XPT=> dropped slightly
to $1,159 from $1,159.50, while palladium <XPD=> was up at $234.50
from $232.00.
Close Change Pct 2008 YTD
Chg Close Pct Chg
US gold <GCQ9> 924.30 3.30 0.4 884.30 4.5
US silver <SIN9> 13.845 0.140 1.0 11.295 22.6
US platinum <PLN9> 1165.40 -3.70 -0.3 941.50 23.8
US palladium <PAU9> 237.00 3.10 1.3 188.70 25.6
Prices at 2:09 p.m. EDT (1809 GMT)
Gold <XAU=> 924.20 2.30 0.2 878.200 5.2
Silver <XAG=> 13.85 0.13 0.9 11.30 22.6
Platinum <XPT=> 1159.00 -0.50 0.0 924.50 25.4
Palladium <XPD=> 234.50 2.50 1.1 184.50 27.1
Gold Fix <XAUFIX=> 920.75 1.50 0.2 836.50 10.1
Silver Fix <XAGFIX=> 13.770 -0.060 -0.4 14.760 -6.7
Platinum Fix <XPTFIX=> 1169.00 0.00 0.0 1529.00 -23.5
Palladium Fix <XPDFIX=> 235.00 0.00 0.0 365.00 -35.6
-------------------------------------------------------------
Prices in dollars per ounce.
2008 close for U.S. gold second contract month, U.S. silver and
palladium third contract months and U.S. platinum fourth contract
month.
(Additional reporting by Nick Vinocur in London; Editing by
Marguerita Choy)
