* Gold tracks euro, finds support within rising channel
* Gold/dollar inverse correlation strongest since Jan.
* Gold/silver ratio lowest since Jan; ETF holdings rise
* Coming up: U.S. Sept housing starts due Tuesday
(Recasts, updates prices to market close)
By Frank Tang
NEW YORK, Oct 18 (Reuters) - Gold was little changed on
Monday, rebounding from earlier sharp losses as a dollar rally
ran out of steam and as bullion found support at the bottom of
its three-month rising channel.
On a day when gold looked set to post its biggest two-day
losses in three months, the metal was able to recoup lost
ground as the dollar's rally fizzled out and turned flat
against the euro, increasing gold's appeal as a currency hedge
Silver resumed its rise after Friday's losses on record
buying in exchange traded funds. The gold-to-silver ratio,
which shows how much silver an ounce of gold can buy, dropped
to 56, its lowest level since mid-2008 as silver kept
outperforming the yellow metal.
Gold slipped below $1,360 an ounce earlier in the session
as the U.S. currency rebounded from recent hefty losses on
worries that expected U.S. monetary easing had already been too
heavily priced in.
Later, the dollar was flat on improving risk appetite as an
encouraging earnings report from the third largest U.S. bank
Citigroup lifted Wall Street nearly 1 percent. []
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 0.2 percent at $1,373.80 an
ounce at 3:52 p.m. EDT (1952 GMT). U.S. gold futures for
December delivery <GCZ0> settled up 10 cents at $1,372.10.
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. Currency fluctuations
have benefited gold as investors turned to bullion as a safer
asset.
(Graphic: http://r.reuters.com/deh58p)
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."
Among other precious metals, silver <XAG=> rose 0.9 percent
to $24.48 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 0.3 percent at $1,692.50 an ounce,
while palladium <XPD=> rose 0.9 percent at $590.
Prices at 3:56 p.m. EDT (1956 GMT)
LAST/ NET PCT YTD
CLOSE CHG CHG CHG
US gold <GCZ0> 1372.10 0.10 0.0% 25.2%
US silver <SIZ0> 24.413 0.125 0.0% 44.9%
US platinum <PLF1> 1698.30 2.90 0.2% 15.5%
US palladium <PAZ0> 588.10 -1.10 -0.2% 43.8%
Gold <XAU=> 1374.40 3.90 0.3% 25.4%
Silver <XAG=> 24.48 0.22 0.9% 45.4%
Platinum <XPT=> 1692.50 4.90 0.3% 15.5%
Palladium <XPD=> 590.00 5.20 0.9% 45.5%
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)
