* Dollar rebound dents gold's currency-hedge appeal
* Strong physical demand limits further losses
* PGM investors take profits following recent rallies
(Recasts, updates comments, closing prices, market activity,
adds NEW YORK to dateline)
By Frank Tang and Jonathan Saul
NEW YORK/LONDON, Dec 29 (Reuters) - Gold dropped on
Tuesday, snapping a three-session winning streak as a resurgent
dollar dampened bullion's appeal as a hedge against paper
currency depreciation.
A dollar rally driven by signs of improvement in the U.S.
economy and sovereign credit worries in the Euro zone dragged
gold more than $100 below its record high of $1,226.10 reached
on Dec. 3.
"It's all predominantly dollar-related at this particular
point," said Frank McGhee, head precious metals trader at
Integrated Brokerage Services. "The gold market should
stabilize and I wouldn't be surprised to see a short-covering
rally."
McGhee said that gold could still come under pressure in
early 2010, but he expected the U.S. currency to eventually
decline due to weak fundamentals.
Spot gold <XAU=> was at $1,096.90 an ounce by 2:51 p.m. EST
(1951 GMT), versus $1,105.60 an ounce late in New York on
Tuesday. Bullion had tumbled to a seven-week low of $1,074.10
an ounce last week before the holiday break.
U.S. gold futures for February delivery <GCG0> settled down
$9.80 at $1,098.10 an ounce on the COMEX division of the New
York Mercantile Exchange.
The dollar rose sharply against the euro and a basket of
six major currencies <.DXY> on the back of a rise in U.S.
consumer confidence in December. []
"Players are still looking to the dollar for direction but
the lack of upside this morning, when we had the stronger euro,
suggests that there is still some long liquidation going on,"
said James Moore, analyst at TheBullionDesk.com, said.
"Certainly the longer-term trend is still very much to the
upside for gold."
Weakness in the U.S. dollar boosts gold's appeal as an
alternative asset and makes dollar-priced commodities cheaper
for holders of other currencies.
TECHNICALS, PHYSICAL DEMAND HELP
Heavy positioning of buy-stops around the $1,100 level
should provide underlying demand in the near term, brokers
said.
"It feels like $1,100 is well supported for the time being
on the upside. I would say $1,110 seems to be a good
resistance," Afshin Nabavi, head of trading with MKS Finance,
said.
Strong physical demand for gold was also limiting losses,
analysts said.
"That is one of the reasons why gold is being supported
every time it goes lower," he said. "So if it continues in this
manner, I think probably beginning of next year we should have
a move on the upside."
The world's largest gold-backed exchange-traded fund, SPDR
Gold Trust <GLD>, said its holdings stood at 1,132.708 tonnes
as of Dec. 28, unchanged since Dec. 21. Holdings hit a record
high of 1,134.03 tonnes on June 1. []
Among other precious metals, spot silver <XAG=> was at
$17.07 an ounce against the previous late New York quote of
$17.50.
Investor sentiment was still bullish for the platinum group
metals after the U.S. Securities and Exchange Commission took a
regulatory step on Dec. 22 that brought the first U.S. platinum
exchange traded fund closer to final approval. []
Platinum and palladium investors took profits on Tuesday
after the metals had surged following the news.
Platinum <XPT=> was at $1,462 ounce against $1,479.00,
while palladium <XPD=> was at $385.50 against its previous
session late quote of $387.50.
Close Change Pct 2008 YTD
Chg Close % Chg
US gold <GCG0> 1098.10 -9.8 -0.9 884.3 24.2
US silver <SIH0> 17.110 -0.450 -2.6 11.295 51.5
US platinum <PLF0> 1467.10 -13.20 -0.9 941.50 55.8
US palladium <PAH0> 388.85 0.00 0.0 188.70 106.1
Prices at 2:50 p.m. EST (1950 GMT)
Gold <XAU=> 1096.90 -8.70 -0.8 878.20 24.9
Silver <XAG=> 17.07 -0.43 -2.5 11.30 51.1
Platinum <XPT=> 1462.50 -16.50 -1.1 924.50 58.2
Palladium <XPD=> 385.00 -2.500 -0.6 184.50 108.7
Gold Fix <XAUFIX=> 1106.00 3.00 0.3 836.50 32.2
Silver Fix <XAGFIX=> 17.42 10.00 0.6 14.76 18.0
Platinum Fix <XPTFIX=> 1472.00 1.00 0.1 1529 -3.7
Palladium Fix<XPDFIX=> 389.00 1.00 0.3 365.0 6.6
(Additional reporting by Chikako Mogi in Tokyo; editing by Jim
Marshall)
