* Gold's retreat seen temporary
* Coming up: U.S. ISM N-Mfg PMI, Dec; 1500 GMT
(Updates prices)
By Amanda Cooper
LONDON, Jan 5 (Reuters) - Gold steadied on Wednesday, a day
after its largest sell-off in nearly two months, buoyed by
consumer demand, which helped offset the potentially negative
impact of the dollar extending gains after upbeat U.S. data.
The rise in the dollar against a basket of currencies acted
as a headwind to gold, which usually profits from weakness in
the greenback, yet the drop in price has encouraged some
opportunistic buying from jewellers and other consumers of
physical metal.
Spot gold <XAU=> was last largely unchanged on the day at
$1,380.25 an ounce by 1150 GMT, after posting its biggest daily
loss since Nov 12. on Tuesday. U.S. gold <GCG1> rose by 0.1
percent to $1,380.40.
Also adding a degree of support was some investor wariness
over a string of euro zone bond auctions, in which Germany and
Portugal sold fresh paper.
"Physical demand certainly is playing a role, but after such
a steep drop you also have some financial investors coming in,"
said Peter Fertig, a consultant for Quantitative Commodity
Research. "That is also leading to a stabilisation and not to
forget that today is an important day in European debt markets."
"As we saw yesterday, there can be significant set-backs,
that investors are taking profits and the big risk for gold,
from my perspective, are some of the major hedge funds, which
are long in physical gold or ETFs, start to take profits," he
said, adding he expected gold to maintain its upward trend.
ECONOMIC OPTIMISM
Federal Reserve officials in December felt the U.S. economic
recovery was still weak enough to warrant monetary support
despite growing signs of strength, Fed meeting minutes released
on Tuesday showed. []
Reflecting waning investor appetite for gold, holdings of
bullion in the world's largest gold-backed exchange traded fund,
the SPDR Gold Trust <GLD>, declined for a sixth consecutive time
to hit a seven-month low, reversing most of the inflows that
materialised when the euro zone debt crisis unfolded.
The price dip, however, did not change the bullish outlook
for the bullion on the longer term, analysts said.
"It's a temporary setback," said Yingxi Yu, an analyst at
Barclays Capital.
"We do see some physical buying come in to support. At this
stage, I don't think we are into something more significant and
sustained, and we still remain relatively positive on gold for
this year."
The dollar held firm on Wednesday, driven by further
evidence that the U.S. economic recovery is gaining traction,
although its gains versus the euro were tempered by central bank
demand for the single European currency. []
"In terms of seasonal patterns, precious metals,
particularly gold, tend to start the year on a weaker footing as
jewellery and fabricator demand softens after the festive
season. However, the fundamental and technical backdrop remains
broadly supportive, in our view," said Credit Suisse in a note.
Silver <XAG=> fell for a third consecutive session, under
pressure from the strength in the dollar and a decline on the
equity markets.
Silver, which can mimic gold's performance when investors
feel nervous over the broader financial markets, is largely an
industrial commodity that can take its cue from higher-risk
assets such as stocks and base metals.
Also adding to the pressure on silver was the third daily
rise in the gold/siver ratio, which measures the number of
ounces of silver needed to buy one ounce of gold. The ratio fell
by a third to multi-year lows in 2010 as silver outperformed
gold with an 84-percent price rise.
Spot silver <XAG=> was last down by 1.8 percent at $29.23 an
ounce.
Weaker equity markets also undermined the platinum group
metals, which through their exposure to the auto market, tend to
react in tandem with other cyclical assets.
Spot platinum <XPT=> fell to a one-week low at $1,708.75
before recovering to $1,715.75, still down 2.1 percent on the
day, while palladium <XPD=> fell by 2.7 percent to $754.22.
(Additional reporting by Rujun Shen in Singapore; Editing by
William Hardy)
