* Dollar extends recovery as investors fret over scope of QE
* Fed's next steps closely eyed
* iShares silver ETF holdings rise to record high
(Updates prices)
By Jan Harvey
LONDON, Oct 18 (Reuters) - Gold slipped below $1,360 an
ounce in Europe on Monday as the dollar bounced back from its
recent hefty losses, with market watchers worried that expected
U.S. monetary easing had already been too heavily priced in.
Investors had increased their bets against the dollar in
recent weeks amid expectations the Federal Reserve would unveil
a second round of quantitative easing as early as November.
Fed Chairman Ben Bernanke on Friday gave his most explicit
signal yet that the U.S. central bank would ease monetary policy
further, but did not provide details on how aggressively it
might act. []
Spot gold <XAU=> was bid at $1,359.50 an ounce at 1118 GMT,
against $1,370.50 late in New York on Friday. U.S. gold futures
for December delivery <GCZ0> fell $12.50 an ounce to $1,359.50.
While the metal is correcting from its recent run higher,
analysts say it is set to remain firmly underpinned for as long
as further quantitative easing remains on the table.
"(The question is), do we see more quantitative easing
around the world? If there is, there will be more gold
momentum," said David Wilson, an analyst at Societe Generale.
He said with U.S. economic data still weak the prospect
could not be discounted. "The same issues still exist -- how do
we stimulate more growth in the United States?" he said. "The
policymakers are having to think about what to do now."
Gold's recent rally to a series of record highs in recent
weeks, peaking last week at $1,387.10 an ounce, has been heavily
predicated on dollar weakness, so any signs of a recovery in the
U.S. currency is likely to weigh heavily, analysts said.
Gold tends to benefit from losses in the dollar as these
lift the metal's appeal as an alternative asset and make
dollar-priced commodities cheaper for other currency holders.
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
For a graphic showing tensions in the currency markets,
click on: http://r.reuters.com/deh58p
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
Market players are also trimming their bets against the
dollar ahead of a forthcoming G20 finance ministers' meeting
later this week, according to analysts.
DOLLAR RECOVERS
As long as the dollar remains in recovery mode, gold prices
are likely to struggle to move higher. The precious metal
appeared overstretched after rallying nearly 12 percent in the
six weeks to its mid-October record high, analysts said.
Its relative strength indicator was at or above 70 - a level
widely seen to indicate overbought conditions - in a nearly
unbroken run from Sept. 15 to Friday, Reuters data showed.
"Since gold broke out of its previous $1,265 high on Sept.
14, it has not experienced two consecutive negative daily
closes," said UBS analyst Edel Tully in a note. "Gold is overdue
a consolidation; it needs to adjust to $1300s price levels and a
short-term pullback would not be a bad thing.
"In the coming two weeks, until the FOMC meeting on Nov.
2-3, recent buyers will be nervous that they bought at the top
of the market and some profit taking from weak longs is likely."
Among other precious metals, silver <XAG=> was at $23.95 an
ounce against $24.26. Holdings of the world's largest
silver-backed exchange-traded fund, New York's iShares Silver
Trust <SLV>, rose to a record 10,224.05 tonnes on Friday.
The fund has seen inflows of more than 880 tonnes since
mid-September, worth some $679.3 million at today's prices.
Silver has outperformed gold in recent weeks with the number
of ounces of silver needed to buy an ounce of gold dropping to
its lowest in more than two years last week.
"The gold:silver ratio completed its eighth consecutive down
week at 56.41," said ScotiaMocatta in a note. "We see support at
the former March 2008 high of 54.35."
Elsewhere platinum <XPT=> was at $1,679.50 an ounce against
$1,687.60, while palladium <XPD=> was at $575.50 versus $584.80.
(Editing by James Jukwey)
