* Gold ends flat, inverse link with dollar seen broken
* U.S. consumer confidence, home prices reinforce QE2
* Palladium hits highest since 2001 on strong inv't demand
(Recasts, adds comments, link to graphic, updates prices,
changes byline and moves dateline from LONDON)
By Frank Tang
NEW YORK, Oct 26 (Reuters) - Gold prices were little
changed on Tuesday, recovering from early lows on technical
buying, as the metal's inverse link with the dollar looked to
have broken, at least for now.
After trading lower for most of the day, gold reversed
losses as U.S. data showing weak consumer confidence and
falling home prices reinforced expectations that the Federal
Reserve will unleash a second around of monetary easing as
early as its Nov. 2-3 meeting.
Silver rose 1.5 percent to lead the precious metals gains,
and palladium surged to a nine-year high for a second
consecutive day.
Frank McGhee, head precious metals trader of Chicago-based
Integrated Brokerage Services, said gold's positive turnaround
was aided by technical buying as the metal shrugged off a
stronger dollar.
"At this point, it's all technicals. Gold had originally
gotten back to trade lock-step with the euro/dollar, but that
was disconnected after gold did not confirm a breakdown ...,"
McGhee said.
The hourly correlation between gold and the dollar, which
tend to move in the opposite direction, suggested a weak
inverse link between the two. Gold has now closed in the same
direction with the U.S. currency only once in the past 10 days,
Reuters data showed.
(Graphic: http://link.reuters.com/wax32q)
Spot gold <XAU=> was down 0.1 percent at $1,337.17 an ounce
at 2:12 p.m. EDT (1812 GMT). U.S. gold futures for December
delivery <GCZ0> settled down 30 cents at $1,338.60, with
trading volume in line with their 30-day average.
Data on Tuesday showed the U.S. economic recovery is still
fragile, with consumer confidence remaining near historically
low levels and home prices falling again after gaining earlier
in the year. []
"There was consumer confidence data ... it failed to weaken
the dollar," said analyst Eugen Weinberg of Commerzbank. "It is
maybe helping a little bit as well -- otherwise gold is
vulnerable to further profit taking."
Investors were awaiting clues from next week's Fed meeting
on whether the U.S. central bank will pump more money into the
economy by resume buying government debt to accelerate growth,
a process known as quantitative easing.
Easier monetary policies could significantly benefit gold
because of a weaker dollar and possible long-term inflation,
analysts said.
Prices hit a record $1,387.10 an ounce this month as the
dollar slid amid expectations the Fed would vote in favor of QE
at its upcoming policy meeting, but retreated as investors
worried the prospect had become too heavily priced in.
"At the moment this (QE) is the most important factor,"
said Commerzbank's Weinberg. "By now, it should have been
priced in to a greater extent. At the moment the market is
buying the rumor and I wouldn't be surprised if it sells the
fact when it comes."
The U.S. dollar rose as the euro again failed to hold above
the $1.4000 level in the prior session, leaving investors wary
of betting against the greenback on Tuesday. []
Gold typically falls as the dollar rises and vice versa,
with strength in the greenback making dollar-priced commodities
more expensive for holders of other currencies.
PHYSICAL DEMAND SUPPORTS
Gold's recent price dip has attracted some physical
interest back to the market in key gold-buying centers like
India, the world's biggest bullion consumer. Buyers there are
stocking up ahead of the key Hindu festival of Diwali, a major
gold-buying event, dealers said. []
Among other precious metals, palladium <XPD=> rose 2.5
percent to $621.55 an ounce, after setting a nine-year high for
a second consecutive day at $624.55 an ounce.
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 as palladium outpaced platinum's gains.
UBS said in a note that palladium, mostly used as
autocatalysts, has been boosted by a combination of 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.
Platinum <XPT=> climbed 0.1 percent to $1,694.50 an ounce,
and silver <XAG=> rose 0.9 percent to $23.71 an ounce.
Prices at 2:40 p.m. EDT (1840 GMT)
LAST/ NET PCT YTD
CLOSE CHG CHG CHG
US gold <GCZ0> 1338.60 -0.30 0.0% 22.1%
US silver <SIZ0> 23.830 0.286 0.0% 41.5%
US platinum <PLF1> 1704.00 7.00 0.4% 15.8%
US palladium <PAZ0> 625.45 16.65 2.7% 53.0%
Gold <XAU=> 1337.57 -0.43 0.0% 22.0%
Silver <XAG=> 23.72 0.22 0.9% 40.9%
Platinum <XPT=> 1696.92 4.87 0.3% 15.8%
Palladium <XPD=> 622.00 15.80 2.6% 53.4%
Gold Fix <XAUFIX=> 1329.50 -4.50 -0.3% 20.4%
Silver Fix <XAGFIX=> 23.48 -23.00 -1.0% 38.2%
Platinum Fix <XPTFIX=> 1696.00 3.00 0.2% 15.7%
Palladium Fix <XPDFIX=> 608.00 1.00 0.2% 51.2%
(Additional reporting by Jan Harvey and Michael Taylor in
London; Editing by Walter Bagley)
