* Equity markets recover in Europe after heavy losses
* SPDR gold ETF sees no fresh inflows, holds Thursday level
(Updates throughout, changes dateline - pvs TOKYO)
By Jan Harvey
LONDON, March 3 (Reuters) - Gold steadied in Europe on
Tuesday, reversing earlier losses, as a firmer tone to equities
eased selling of the metal to cover losses on other markets.
But the weakness of inflows into exchange-traded funds is
still worrying investors, traders said.
Spot gold <XAU=> was at $924.45/925.45 an ounce at 1012 GMT
from $925.35 late in New York on Monday. Earlier it touched a
near three-week low of $919.90 an ounce.
"Recovering stock markets could lend gold a helping hand,"
said Deutsche Bank trader Michael Blumenroth. "If we are able to
trade above $930 (an ounce) again we have a chance to see $950,
but if not, we could trade down to $900/$890."
Gold slipped 1.5 percent on Monday as global stock markets
plummeted, with Wall Street falling to 12-year lows, forcing
some investors to sell the precious metal to meet margin calls.
Prices slipped further as Tokyo stocks neared 26-year lows
and other indexes in Asia fell, caught up in fresh risk
aversion.
Gold can benefit from turmoil in equities, as it is seen as
a haven from risk. However, in the short term it may get caught
up in selling as investors raise cash to cover their losses.
"It appears that equity market margin calls, resulting in
widespread asset liquidation, are inhibiting precious metals'
attempt to take advantage of equities' demise," said Standard
Bank analyst Walter de Wet.
Gold recovered as European shares crept higher at the open
as investors hunted bargains after sharp losses. Oil also
recovered after a 10 percent drop. [] []
Gold tends to track the price of crude oil, which is seen as
the bellwether of the commodities complex.
The other main external driver of gold, the dollar, weakened
as equities recovered some of the previous day's losses. Traders
bought the euro and other higher-yielding currencies after the
Reserve Bank of Australia unexpectedly held interest rates
unchanged amid the financial turmoil.
Traders are awaiting interest rate decisions from the
European Central Bank and the Bank of England later in the week.
INFLATION
Analysts are keeping a close eye on the inflation outlook.
UBS strategist John Reade said gold moved higher from
mid-January as inflation expectations, as measured by spread
rates in treasury bond markets, recovered from lows.
"The fact that the recent correction in gold has been
accompanied by falling long dated...spreads should come as no
surprise," he said.
"We suspect the market is reacting to the much worse than
expected U.S. growth data and that the prospects of short term
deflation are now increasing again, outweighing minority-held
fears of much higher long-term inflation," he added.
In India, the world's largest gold market, a 3 percent drop
in rupee-denominated gold failed to attract buyers. Sales have
suffered from rising prices.
"There is not much demand even as prices have fallen," said
Pinakin Vyaas, chief manager-treasury with IndusInd Bank in
Mumbai. "Orders are there... (but) in a range of $900/908."
The rising supply of gold scrap in Asia and the Middle East
as gold holders cash in on the metal's higher price is easily
meeting demand and depressing prices, dealers say.
A drop-off in buying of gold-backed exchange-traded funds is
also worrying analysts.
Heavy inflows into gold ETFs at the beginning of the year
were a key factor in pushing prices higher, but these stalled
after the metal broke through $1,000 an ounce last month.
The world's largest gold-backed ETF, the SPDR Gold Trust
<GLD>, said its holdings were 1,029.29 tonnes on Monday, steady
from Thursday and up only 5 tonnes in nearly a fortnight.
"A continuation -- or not -- of buying of gold ETFs will be
the most interesting point to watch at the moment," said
Blumenroth.
Among other precious metals, spot platinum <XPT=> eased to
$1,043/1,053 an ounce from $1,054, while palladium <XPD=> was at
$190.50/195.50 an ounce from $190.50. Spot silver <XAG=> slipped
to $12.72/12.78 an ounce from $12.91.
(Reporting by Jan Harvey; Editing by Keiron Henderson)
