* Dollar weakens versus the euro as equities recover
* Oil up 3 percent on expected output cuts, cold snap
* Traders eye ECB rate decision on Thursday for direction
(Updates throughout, previous SINGAPORE)
By Jan Harvey
LONDON, Jan 14 (Reuters) - Gold firmed in Europe on
Wednesday, supported by a weaker dollar and rising oil prices,
though it pared gains as the euro slipped from highs against the
U.S. currency and equities and base metals turned negative.
Trading is expected to be muted ahead of the interest rate
announcement of the European Central Bank on Thursday. The ECB
is widely expected to cut rates by 50 basis points.
Spot gold <XAU=> was at $824.20/825.60 an ounce at 1026 GMT,
down from $821.05 late in New York on Tuesday. It touched a high
of $828.65 earlier in the session, but slipped as the euro
retreated and European equities and base metals turned negative.
"Everyone is in wait-and-see mode for the ECB," said Simon
Weeks, director of precious metals at the Bank of Nova Scotia.
In the short term, gold risks being caught up in falling
equity and industrial metals prices, he said.
However, with interest in investment products such as
exchange-traded funds remaining high, "there is certainly an
element that views gold as a safe haven," he said.
"As long as that interest continues, it is a very good
signal for gold in the long term," he added.
In the shorter run, gold is taking support from dollar
weakness. Bullion is often bought as an alternative investment
to the dollar and tends to move in the opposite direction to it.
All eyes are now on the interest rates decision of the ECB
on Thursday, which will have a significant impact on the foreign
exchange markets, and consequently on gold.
Data released on Wednesday showed euro zone industrial
production plunged for the seventh month running in November,
suggesting the recession is worsening and strengthening views
the ECB will cut rates deeply on Thursday. []
FIRM CRUDE
Elsewhere firmer oil prices are supporting gold. Crude
bounced up more than 3 percent to above $39 a barrel as talk of
OPEC output cuts continued and a cold snap in the United States
boosted heating oil demand. []
However, analysts are still eyeing developments in the wider
commodity and equity markets.
"Equity markets continue to fall on jitters over company
earnings," said Standard Bank analyst Walter de Wet. "Stock
markets' ongoing decline and the lack of major economic data is
dictating precious metals' direction."
European shares fell on Wednesday, erasing earlier gains, as
falling banking and mining stocks led the market lower.
Industrial metals prices also swung back into the red.
"Metals have been heading south, which we expect to
continue," noted de Wet.
In Asia, jewellers are buying up gold bars ahead of the
Lunar New Year on January 26, dealers said. Premiums for gold
bars were steady at between 10 and 20 U.S. cents to spot London
prices in Hong Kong. []
"With Chinese New Year approaching it will be very
interesting to hear how sales have gone and whether the strong
purchases continue after the New Year holidays," said UBS
strategist John Reade in a note.
Jewellery demand in the world's largest bullion market,
India, has however been lacklustre in recent weeks, as buyers
await lower prices.
Interest in investment products backed by physical gold,
such as ETFs, is also healthy. Bullion holdings of the world's
largest gold-backed exchange-traded fund, the SPDR Gold Trust
<GLD>, remain near record levels.
Among other precious metals, spot platinum <XPT=> edged up
to $955.50/960.50 an ounce from $941, while palladium <XPD=> was
quoted at $182.50/187.50 an ounce against $182.
Spot silver <XAG=> was at $10.75/10.83 against $10.72.
(Editing by James Jukwey)
