* U.S. inflation up more than expected
* Fed meeting eyed for clues on direction of dollar
* SPDR gold ETF reports inflow on Monday
(Releads, updates prices, adds comment)
By Jan Harvey
LONDON, Dec 15 (Reuters) - Gold pared early losses in Europe
on Tuesday after U.S. inflation data for November came in higher
than expected, boosting interest in the metal as a hedge against
rising prices.
Prices earlier fell more than 1 percent as the dollar rose
versus the euro. But the inflation data lifted them back towards
late yesterday's levels, with momentum picking up as traders
bought back short positions, or bets prices will fall.
Spot gold <XAU=> was bid at $1,121.70 an ounce at 1509 GMT,
against $1,126.20 late in New York on Monday. Earlier it fell as
low as $1,111.20 an ounce.
"Gold found some buying interest after U.S. inflation data
came out higher than expected, playing out its role as an
inflation hedge," said Heraeus trader Alexander Zumpfe.
Government data on Thursday showed U.S. producer prices rose
more than forecast in November as energy costs soared. Gold is
often seen as an inflation hedge. []
Oil prices also rose $1.25 a barrel, or 1.8 percent. U.S.
gold futures for February delivery <GCG0> on the COMEX division
of the New York Mercantile Exchange fell 70 cents to $1,123.10
an ounce. []
A rise in the dollar versus the euro on Tuesday kept
pressure on gold, however, as concerns about euro zone banks
helped prompt short covering in the safe-haven dollar. []
Traders are keenly awaiting comments by the U.S. Federal
Reserve, which starts a two-day policy meeting later in the day.
The bank is likely to repeat a pledge to keep interest rates
near zero for an extended period, even though it may acknowledge
signs of economic recovery.
SCEPTICAL
"So far, the U.S. central bank has remained quite sceptical
of a quick recovery, though still talking inflation expectations
down," said VTB Capital analyst Andrey Kryuchenkov in a note.
"A rate rise is still not expected until 2H10, but the
dollar sentiment could be gradually improving and this would
slow down a much expected price recovery in gold in early 2010."
On the physical side of the market, lower gold prices
attracted purchases from the electronics sector in Japan and
spurred bargain hunting by jewellers in other parts of Asia such
as India, but trading began to slow down ahead of year-end.
[]
India's gold traders picked up bargains on Tuesday in the
middle of the wedding season as the yellow metal reversed early
gains on a strong overseas dollar, dealers said. []
Meanwhile holdings of the world's largest gold-backed
exchange-traded fund, SPDR Gold Trust <GLD>, rose 0.304 tonnes
on Monday to 1,116.551 tonnes the previous day. []
The SPDR saw its biggest outflow since July last week, amid
a fall in gold prices to four-week lows. This consolidation has
allowed gold to build a base for further gains, analysts say.
"I think the recent retrenchment will simply be a buying
opportunity," said David Wilson, an analyst at Societe Generale.
"A rescaling of $1,200 an ounce isn't beyond the realms of
possibility."
Among other precious metals silver <XAG=> was bid at $17.28
an ounce against $17.36, tracking losses in gold. Platinum
<XPT=> was at $1,436 an ounce against $1,443.50, while palladium
<XPD=> was at $361.50 against $364.50.
(Editing by Keiron Henderson)
