* U.S. data sparks flight to dollar
* Oil slips, traders fret over demand outlook
* Traders await ECB rate decision on Thursday
(Updates prices, adds comment)
By Jan Harvey
LONDON, Jan 14 (Reuters) - Gold fell 1 percent on Wednesday,
giving up earlier gains as the dollar firmed against the euro
after weaker-than-expected economic data sparked a flight to the
relative safety of the U.S. currency.
Trading is expected to be muted ahead of the interest rate
announcement of the European Central Bank on Thursday, traders
said. The ECB is widely expected to cut rates by 50 basis
points.
Spot gold <XAU=> was at $812.00/814.00 an ounce at 1523 GMT,
down from $821.05 in New York late 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.
U.S. gold futures for February delivery <GCG9> on the COMEX
division of the New York Mercantile Exchange fell $8.10 to
$812.60 an ounce.
"Gold has fallen as the dollar has increased on a flight to
safety after very bad retail sales numbers," said Calyon metals
analyst Robin Bhar.
"People were calling for a pretty bad retail sales number as
it stood, but this was even worse than most people had feared,"
he said.
December retail sales numbers released earlier on Wednesday
showed total sales down 2.7 percent last month, against
expectations for a 1.2 percent fall. []
The U.S. currency extended gains against the euro as
investors spooked by the outlook for the global economy bought
into the dollar as a haven from risk. []
While in the longer run risk aversion is also likely to
benefit gold, in the short term currency moves will have more of
an impact on the precious metal, analysts said.
The single currency also came under pressure after Standard
and Poor's cut its credit ratings on Greece's sovereign debt.
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.
"Everyone is in wait-and-see mode for the ECB," said Simon
Weeks, director of precious metals at the Bank of Nova Scotia.
Data released on Wednesday showed the German economy
contracted sharply in the final quarter of 2008 and euro zone
industrial production plunged for the seventh month running in
November. []
The data suggested the recession is worsening and
strengthens views the ECB will cut rates deeply on Thursday.
CRUDE SLIPS
Oil prices also slipped, giving up earlier gains, on the
spate of poor economic data. []
Gold typically moves in line with crude prices, both because
it is bought as a hedge against oil-led inflation, and as crude
can indicate interest in commodities as an asset class.
In Asia, jewellers are buying up gold bars ahead of the
Lunar New Year on Jan 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," UBS strategist
John Reade said 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 down
to $930/940 an ounce from $941, while palladium <XPD=> was
quoted at $178/183 an ounce against $182.
Spot silver <XAG=> was at $10.41/10.49 against $10.72.
(Editing by Sue Thomas)
