* Drop in oil, stocks dampen gold's inflation hedge allure
* Wary of long futures positions as quarter-, month-end near
* SPDR Gold holdings <XAUEXT-NYS-TT> fall 0.7 percent
By Chikako Mogi
TKYO, Sept 25 (Reuters) - Gold hovered near two-week lows on
Friday as a rebound in the dollar dampened bullion's appeal as a
currency hedge while investors were becoming wary of speculative
long positions building in futures.
Sluggish stocks and falling oil prices to 8-week lows on
worries about the economy also took away some of gold's allure as
a hedge against inflation.
Some traders said that notably slow growth in gold-backed
exchange-traded funds compared to the market's rally to 18-month
highs suggested investor demand may be peaking, while others
expected slack jewellery demand from India, the world's largest
consumer of gold.
"With the weakness in oil prices and stocks becoming
volatile, investors who were buying gold as a hedge against
inflation on economic hopes are finding they have less appetite
for gold," said Kazuhiko Saito, chief analyst at Fujitomi Co Ltd
in Tokyo.
Spot gold <XAU=> inched up 0.2 percent to $995.45 an ounce as
of 0310 GMT, compared with New York's notional close of $993.75.
At the current level, spot gold is set for a weekly drop of
about 1 percent, after touching a two-week low on Thursday to
close below $1,000 for the first time in nearly two weeks.
U.S. gold futures for December delivery <GCZ9> were down 0.1
percent at $997.0 an ounce, compared with $998.90 an ounce on the
COMEX division of New York Mercantile Exchange.
The contract hit an intraday low of $991.30 on Thursday, its
weakest since Sept. 10. Futures are also set for a weekly decline
of about 1 percent at current levels.
Investors bought the dollar back to avert risk after major
central banks including the U.S. Federal Reserve announced plans
to scale back emergency lending on Thursday.
The dollar held steady on Friday after gaining against the
euro the previous day, when the dollar index <.DXY> jumped more
than 1 percent against a basket of major currencies. []
The timing for plans to unwind emergency economic support is
a key issue for investors as such moves could hamper efforts to
nurture the recovery from the recession and build safeguards
against future catastrophes.
"I doubt if central banks will start raising interest rates
prematurely, so liquidity will likely remain ample well into next
year, pressuring the dollar and prompting investors to buy gold
using dollar carry-trades," Saito said.
"Despite such a favourable outlook, my concern is the
weakness in physical demand, notably India," he said, adding that
Indian gold purchases have slowed sharply this year compared to a
year ago.
An analyst at a foreign securities firm in Tokyo said
investors, who were increasingly expanding their gold purchases
through exchange-traded funds (ETFs) recently, were drawing money
out as stocks faltered.
"As long as stocks are undergoing a correction, outflows in
ETFs will cap the upside for gold," he said.
Asian stocks outside Japan were down nearly 1 percent
<.MIAPJ0000PUS>.
The world's largest gold-backed exchange-traded fund, the
SPDR Gold Trust <GLD>, said its holdings fell to 1,094.107 tonnes
as of Sept. 24, down 0.7 percent from 1,101.735 tonnes the
previous business day. It was the biggest fall in about two
months. <XAUEXT-NYS-TT> []
Precious metals prices at 0308 GMT
Metal Last Change Pct chg YTD pct chg Turnover
Spot Gold 996.15 2.40 +0.24 13.18
Spot Silver 16.15 -0.03 -0.19 42.67
Spot Platinum 1292.50 -5.00 -0.39 38.68
Spot Palladium 291.50 0.00 +0.00 57.99
TOCOM Gold 2914.00 -52.00 -1.75 13.25 40604
TOCOM Platinum 3783.00 -97.00 -2.50 42.65 13297
TOCOM Silver 471.30 -21.20 -4.30 47.60 645
TOCOM Palladium 843.00 -26.00 -2.99 53.27 314
Euro/Dollar 1.4651
Dollar/Yen 90.65
TOCOM prices in yen per gram, except TOCOM silver which is
priced in yen per 10 grams. Spot prices in $ per ounce.
(Reporting by Chikako Mogi; Editing by Edwina Gibbs)
