* Gold firms to pre-Fed levels after dip off session highs
* Euro falls to session lows vs dollar after Fed statement
* Gold demand in India abates as prices tick back up
(Recasts, updates prices, market activity following Fed
statement)
By Carole Vaporean
NEW YORK, Dec 16 (Reuters) - Gold rose on Wednesday as the
market remained firm even as the dollar regained ground against
the euro in late trading after the Federal Reserve stated
optimism that the U.S. economy was stabilizing.
But gold kept its appeal as an inflation hedge as the Fed
pledged to keep interest rates low at a time many investors
fear inflation may be picking up. These factors would be
bearish for the dollar and bullish for gold in the long term.
Spot gold <XAU=> was bid at $1,137.90 an ounce by 4:15 p.m.
EST (2115 GMT), up from $1,124.40 late in New York on Tuesday.
It had dipped as low as $1,128.80 after the Fed released its
statement.
U.S. gold futures for February delivery <GCG0> on the COMEX
division of the New York Mercantile Exchange settled at
$1,136.20 an ounce, up $13.20. After the settlement, it moved
up to $1,138.90, near its pre-Fed levels.
Gold slipped off session highs for awhile as the dollar
rebounded against the euro after the Fed left interest rates
unchanged. []
As had been widely expected, the Fed reaffirmed it would
keep short-term rates low. [] and [].
The Fed also said it expected inflation to remain stable for
some time.
Investors expect gold to benefit from continued low
interest rates, which would keep the dollar weak.
The Labor Department reported that consumer prices edged up
a modest 0.4 percent last month, but some analysts said they
see signs that inflation has picked up, which would support
gold as an inflation hedge.
"The Fed is worried that people sitting at home will keep
inflation quiescent, but they are wrong. ... there is no
evidence of deflation," said Delta Global Advisors senior
market strategist Michael Pento in California. He cited
increases in import prices and other indicators.
At current low interest rates near zero, Pento said, "the
Fed has guaranteed negative (U.S.) interest rates as far as the
eye can see."
The low interest rate environment will also favor higher
yielding gold as an investment, he said.
The weak dollar had been supporting precious metals earlier
in the day, as risk appetite increased with a rise in stocks
and commodities. []
"Going into year-end, with relatively thin trading in both
the currency and the gold markets ... gold is likely to be
driven in large by the currency moves," said Daniel Major, an
analyst at RBS Global Banking & Markets.
A softer dollar versus the euro boosts gold's appeal as an
alternative asset and makes dollar-priced commodities cheaper
for holders of other currencies.
SPECULATORS SUPPORT
Speculative investors attracted to what they perceive to be
the metal's good value after a $100 price retreat from record
levels over the last two weeks are also providing key support
for gold prices on the downside, traders said.
On the physical side of the market, India's gold demand
turned weak as traders sought lower prices, after the offtake
picked up slightly late in the previous session, dealers said.
[]
The SPDR Gold Trust <GLD>, the world's largest gold-backed
exchange-traded fund, said its holdings were unchanged on
Tuesday from the previous session. []
Among other precious metals, silver <XAG=> was at $17.69 an
ounce versus $17.41, platinum <XPT=> was at $1,451.50 an ounce
versus $1,445.50 and palladium <XPD=> at $371.0 versus $363.80
in late New York dealings.
(Additional reporting by Jan Harvey in London; Editing by
David Gregorio)
