* Stronger dollar a trigger for investor sales
* Gold gains limited even as oil rise toward $80/bbl
* Physical market seen weak, more scrap on market
(Recasts, updates comments, closing prices, market
activity, adds second byline, dateline)
By Frank Tang and Pratima Desai
NEW YORK/LONDON, Oct 16 (Reuters) - Gold rose slightly on
Friday, erasing initial losses as light investment buying shook
off worries about the banking sector stirred by a quarterly
loss posted by Bank of America.
Gold prices ended the week largely unchanged compared with
last Friday's level, as a combination of technical weakness,
renewed credit concerns and record speculative long positions
in the futures market prompted selling in gold.
Spot gold <XAU=> scaled a record high of $1,070.40 an ounce
on Wednesday. New York gold futures hit a record high of $1,072
on Wednesday.
Spot gold was at $1,052.80 an ounce at 2:56 p.m. EDT (1856
GMT), versus $1,049.85 late in New York on Thursday.
December gold futures <GCZ9> settled up 90 cents at
$1,051.50 an ounce in COMEX trade.
On Friday, gold's rise was capped by a resurgent dollar.
The dollar hit session highs against the euro after Bank of
America reported a net loss of $1 billion in the third quarter
of 2009 compared with a profit over the same period last year.
[] []
"Gold is following the dollar very closely," said Andrey
Kryuchenkov, analyst at VTB Capital. "The market has run ahead
of itself and a stronger dollar is a trigger to sell."
Bank of America's results follow disappointing results on
Thursday from Goldman Sachs <GS.N> and Citigroup <C.N>.
"We're still in an upside trend on the (stock) market, but
it won't last unless we see companies' revenues starting to
rise again. And it's not the case for now," said Jacques Henry,
analyst at Louis Capital Markets, in Paris.
A higher dollar makes commodities priced in the U.S. unit
more expensive for holders of other currencies. That
relationship has been reinforced by gold's role as an
alternative to the dollar.
Traditionally investors buy gold when they fear inflation
or financial market turbulence, but gold is seen as overvalued
at current levels and many investors are opting for U.S.
Treasuries, which means they have to buy dollars.
"Gold has been long overdue a correction on the downside.
It's lost momentum up here," said Simon Weeks, director of
precious metals at Bank of Nova Scotia. "I wouldn't be
surprised to see it back below $1,000."
Bullion posted slight gains in spite of a rally in oil,
which has risen for the past seven straight days, outperforming
gold. Gold is used as a hedge against inflation.
A closely watched gold-to-oil ratio has dropped to below
14. Technical traders often switch positions between gold and
oil when one is perceived to be cheaper relative to the other.
Appreciating oil prices, often seen as a trigger for rising
inflation, usually lift gold.
STALLED RALLY?
Lackluster investor interest could be seen at current high
prices. Gold holdings by the world's largest gold-backed
exchange-traded fund, the SPDR Gold Trust <GLD>, have been flat
since Oct. 7.
SPDR holdings stood at 1,109.314 tonnes on Thursday, the
highest since early July but still off a record high of
1,134.03 tonnes marked on June 1 and 2. []
"Dollar weakness has stalled temporarily so people have
used that as an excuse to take profits," said Daniel Smith,
analyst at Standard Chartered. He added gold prices could
average $1,140 an ounce in 2010.
However, some analysts expect gold to come under pressure
from weak physical demand because prices are too high.
"For the fourth quarter the physical market is not great at
this stage," Standard Bank analyst Walter De Wet said.
"There seems to be quite a bit of scrap coming through the
market which is adding to the resistance."
Among other precious metals, silver <XAG=> was at $17.41 an
ounce from $17.32, platinum <XPT=> at $1,336.50 from $1,348.50
and palladium <XPD=> at $326.50 from $323.50.
Close Change Pct 2008 YTD
Chg Close % Chg
US gold <GCZ9> 1051.50 0.9 0.1 884.3 18.9
US silver <SIZ9> 17.420 0.005 0.0 11.295 54.2
US platinum <PLF0> 1348.50 -7.00 -0.5 941.50 43.2
US palladium <PAZ9> 330.65 2.50 0.8 188.70 75.2
Prices at 2:56 p.m. EDT (1856 GMT)
Gold <XAU=> 1052.80 2.95 0.3 878.20 19.9
Silver <XAG=> 17.42 0.10 0.6 11.30 54.2
Platinum <XPT=> 1336.00 -12.50 -0.9 924.50 44.5
Palladium <XPD=> 326.50 3.000 0.9 184.50 77.0
Gold Fix <XAUFIX=> 1047.50 -0.25 0.0 836.50 25.2
Silver Fix <XAGFIX=> 17.31 -23.00 -1.3 14.76 17.3
Platinum Fix <XPTFIX=> 1340.00 1.00 0.1 1529 -12.4
Palladium Fix<XPDFIX=> 327.00 2.00 0.6 365.0 -10.4
(Additional reporting by Rebekah Curtis and Veronica Brown in
London; Editing by Lisa Shumaker)
