* Signs of lower physical demand weighs down on bullion
* Weak U.S. data sparks flight to dollar, pressures gold
* Traders await ECB rate decision
(Recasts, updates with quotes, closing prices, adds NEW YORK
to dateline)
By Frank Tang and Jan Harvey
NEW YORK/LONDON, Jan 14 (Reuters) - Gold fell 1 percent on
Wednesday as the dollar firmed against the euro and global
stock markets slid, while evidence of weaker physical demand
took a toll on buying sentiment.
"Certainly, jewelry demand is very weak, especially in
Europe. And the strength of the dollar only exaggerated it,"
said Leonard Kaplan, president of Prospector Asset Management.
John Reade, head of metals' strategy at UBS, said that the
investment bank's gold sales to top bullion consumer India were
"miserable" at the moment due to high prices. Reade expected
prices would have to head toward the low $700s to find strong,
sustained demand.
Spot gold <XAU=> was at $811.60 an ounce, down 1.1 percent
at 2:23 p.m. EST (1923 GMT), compared with the last trade of
$821.05 on Tuesday.
Bullion initially climbed but turned lower as the euro
retreated and global stocks and industrial metals such as
copper weakened.
U.S. gold futures for February delivery <GCG9> settled down
$11.90, or 1.5 percent, at $808.80 an ounce on the COMEX
division of the New York Mercantile Exchange.
"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.
U.S. retail sales numbers for December released earlier on
Wednesday showed total sales down 2.7 percent last month,
against expectations for a 1.2 percent fall. []
"Gold is surprisingly holding up very well against a dollar
rally, but I do not believe it is going to last," Kaplan said.
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.
Bullion is often bought as an alternative investment to the
dollar and tends to move in the opposite direction.
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 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.
LUNAR NEW YEAR
Oil prices also ended lower, 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, jewelers 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. []
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=> was
quoted at $930.00 an ounce, down 1.2 percent compared with its
last finish of $941, while palladium <XPD=> traded at $178.50
an ounce, 1.9 percent lower than its previous close of $182.
Spot silver <XAG=> was quoted at $10.55 an ounce, down 1.6
percent from its previous session close. $10.72.
(Editing by Christian Wiessner)
