* Dollar a touch firmer against currency basket, euro
* All eyes on U.S. data ahead of Fed meet next week
* Palladium well supported after hitting highest since 2001
(Updates prices)
By Jan Harvey
LONDON, Oct 26 (Reuters) - Gold edged lower in Europe on
Tuesday as the dollar firmed a touch, but held near $1,340 an
ounce as investors awaited clues from U.S. data due this week on
the prospect of further monetary easing in the United States.
The Federal Reserve will discuss at a meeting in Washington
next week whether to extend its quantitative easing policy to
accelerate growth. This could have significant implications for
the dollar and inflation, and consequently gold.
Spot gold <XAU=> was bid at $1,334.81 an ounce at 1113 GMT,
against $1,338.00 late in New York on Monday. U.S. gold futures
for December delivery <GCZ0> eased $3.90 an ounce to $1,335.00.
"Markets are now in the process of discounting the weekend
impact of the G20 meeting and are bracing for the next big move
by the Federal Reserve," said Pradeep Unni, senior analyst at
Richcomm Global Services.
"Any drop in prices is likely to be used by jewellers to
accumulate gold ahead of the busy festive season," he added.
"The bullish momentum hasn't tarnished despite the 5 percent
correction that we saw last week."
Gold prices retreated from the record $1,387.10 an ounce
they hit earlier this month as the dollar bounced back from
hefty losses, as investors worried that they had too heavily
priced in expected monetary easing from the Fed.
Gold typically falls as the dollar rises and vice versa,
with strength in the U.S. unit curbing gold's appeal as an
alternative asset and making dollar-priced commodities more
expensive for holders of other currencies.
The dollar firmed 0.16 percent against a basket of
currencies on Tuesday as market participants pondered how much
monetary easing the Fed would opt for, and how much may be
priced into an already weak U.S. currency. []
Currency markets are looking ahead to key U.S. data later on
Tuesday, including readings of consumer confidence and home
prices. They are also awaiting the first report on third-quarter
gross domestic product growth due later in the week.
PHYSICAL DEMAND EMERGES
Gold's recent price dip has attracted some physical interest
back to the market in key gold-buying centres like India, the
world's biggest bullion consumer. Buyers there are stocking up
ahead of festivals, dealers said. []
"The market is certainly getting cautious, but every retreat
is seen as an opportunity even though large scale buying is
absent," said VTB Capital analyst Andrey Kryuchenkov in a note.
Among other precious metals, palladium <XPD=> was at $607.05
an ounce against $606.20, not far from the nine-year high at
$617.50 an ounce it hit on Monday.
The ratio of platinum to palladium -- the number of ounces
of palladium needed to buy an ounce of platinum -- fell to its
lowest since mid-2004 in that session as palladium outpaced
platinum's gains.
"While investor and speculator activity is in part
responsible for palladium's recent gains, the metal's supply and
demand fundamentals remain supportive, and are likely to tighten
over the next 12 months," said UBS in a note on Tuesday.
"Our palladium-bullish thesis is grounded in rising emerging
market auto sales, tightening emission legislation in China,
little immediate threat from electric vehicles, low mine supply
growth, and limited Russian stockpile sales," it added.
"This last factor will most likely be the primary
determinant of whether palladium can rise to $1,000 over the
medium term, but for now remains a wild card." []
Elsewhere platinum <XPT=> was at $1,694.67 an ounce versus
$1,692.05, and silver <XAG=> at $23.45 an ounce against $23.50.
(Editing by Alison Birrane)
