* Gold tracks euro, finds support within rising channel
* Gold/dollar inverse correlation strongest since Jan.
* Silver up as silver ETF holdings rise to record high
(Recasts, adds comments, graphics, updates prices, changes
byline/dateline, previously LONDON)
By Frank Tang
NEW YORK, Oct 18 (Reuters) - Gold was little changed on
Monday, rebounding from sharp earlier losses as the dollar
weakened, increasing the metal's investment appeal with bullion
finding support at the bottom of its three-month rising
channel.
Silver resumed its rise after Friday's losses, as investor
buying lifted holdings of silver exchange traded funds to a
record high.
Gold slipped below $1,360 an ounce earlier in the session
as the U.S. currency rebounded from recent hefty losses, with
investors holding the dollar worried that expected U.S.
monetary easing had already been too heavily priced in.
The dollar's rally later ran out of steam and, turned
slightly weaker against the euro as U.S. equity markets
extended gains on a stronger-than-expected earnings from
Citigroup. []
Technical buying also triggered bullion's recovery from
early lows, as prices found support within a rising channel
which started back in late July.
"At this point, it's all technical trade. We've held the
technical lows in the channel, and that takes some of the
correction pressure off the market each time we fall. It
lessens the likelihood of an extremely big break," said Frank
McGhee, head precious metals trader of Integrated Brokerage
Services.
(Graphic: http://link.reuters.com/hab98p)
Spot gold <XAU=> was trading up 0.1 percent at $1,371.70 an
ounce at 12:38 p.m. EDT (1638 GMT). U.S. gold futures for
December delivery <GCZ0> were up 20 cents at $1,372.20.
Gold, which is denominated in dollars, tends to move in the
opposite direction to the U.S. currency. The correlation
between bullion and the U.S. currency has increased to a
negative 0.67, its strongest inverse relationship in 10
months.
(Graphic: http://link.reuters.com/myx88p)
Gold's rally to a series of record highs in recent weeks,
peaking at $1,387.10 an ounce, has been heavily predicated on
weakness in the dollar. It has struggled to maintain traction
as the dollar has recovered, however.
On Friday, gold retreated as the dollar rose and Federal
Reserve Chairman Ben Bernanke 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.
Investors had increased bets against the dollar in recent
weeks amid expectations the Fed would unveil a second round of
quantitative easing as early as November.
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.
(Graphic: http://r.reuters.com/deh58p )
While the metal has steadied after its recent run higher,
analysts say it is set to remain firmly underpinned for as long
as further quantitative easing remains on the table -- though
the scope and shape of this remains unclear.
OVERSTRETCHED
Also on charts, the precious metal seems to have become
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 $1300's price
levels and a short-term pullback would not be a bad thing."
Among other precious metals, silver <XAG=> rose 0.7 percent
to $24.42 an ounce. 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 had inflows of more than 880 tonnes since
mid-September, worth some $679.3 million at today's prices.
Platinum <XPT=> was up 0.2 percent at $1,691.50 an ounce,
while palladium <XPD=> edged up 0.2 percent at $586.
Prices at 12:47 p.m. EDT (1647 GMT)
LAST NET PCT YTD
CHG CHG CHG
US gold <GCZ0> 1371.10 -0.90 -0.1% 25.1%
US silver <SIZ0> 24.410 0.122 0.5% 44.9%
US platinum <PLF1> 1696.50 1.10 0.1% 15.3%
US palladium <PAZ0> 587.00 -2.20 -0.4% 43.6%
Gold <XAU=> 1370.55 0.05 0.0% 25.0%
Silver <XAG=> 24.40 0.14 0.6% 44.9%
Platinum <XPT=> 1691.00 3.40 0.2% 15.4%
Palladium <XPD=> 585.50 0.70 0.1% 44.4%
Gold Fix <XAUFIX=> 1367.25 7.50 0.6% 23.8%
Silver Fix <XAGFIX=> 24.02 -40.00 -1.6% 41.4%
Platinum Fix <XPTFIX=> 1686.00 9.00 0.5% 15.0%
Palladium Fix <XPDFIX=> 582.00 8.00 1.4% 44.8%
(Additional reporting by Jan Harvey in London;editing by
Sofina Mirza-Reid)
