* Flight-to-quality buying boosts gold despite dollar rise
* India January gold imports plunge more than 90 percent
* Gold Fields sees output rising 14 percent in Q3
(Recasts, updates with quotes, closing prices, adds NEW
YORK to dateline)
By Frank Tang and Jan Harvey
NEW YORK/LONDON, Jan 29 (Reuters) - Gold turn sharply
higher Thursday on the back of flight-to-quality buying despite
a strong dollar, but weak physical bullion demand could still
cap recent gains below $900 an ounce.
"I think that the flight to quality has triggered purchases
of gold and dollar simultaneously," said James Steel, chief
commodities analyst of HSBC.
Bullion and the U.S. currency had previously traded in
tandem in times of wars and enduring economic crises, Steel
said. However, signs of weak physical demand could limit gains
and keep prices below $900 an ounce, he added.
A stronger dollar typically weighs on gold, which is often
bought as a currency hedge, but the relationship has decoupled
in recent sessions as both benefited from safe-haven type of
buying.
"That is a very long-standing relationship," said Citi
analyst David Thurtell. "I would be surprised to see it break
down." He said a rise above $888 would set the metal up for
further gains.
Spot gold <XAU=> was at $906.30 an ounce at 2:55 p.m. EST
(1955 GMT), up 2.3 percent from the last trade $885.60 on
Wednesday in New York.
U.S. gold futures for April delivery <GCJ9> settled up
$16.50, or 1.9 percent, at $906.50 an ounce on the COMEX
division of the New York Mercantile Exchange.
The dollar and yen rose broadly as bleak U.S. economic data
and falling share prices kept investors wary of risk even as
countries embraced more monetary and fiscal stimulus to boost
growth. []
The precious metal has fallen 4 percent this week from the
three-month high of $915.30 it hit on Monday. Prices eased on
Wednesday as the Chicago Board Options Exchange Volatility
index <.VIX> -- Wall Street's so-called fear gauge -- fell.
"We decoupled from the currencies, the S&P. There is a lot
of interest in the gold as an accepted safe-haven entity," said
Mihir Dange, a COMEX gold floor trader.
Worries about deflation also weighed on gold due to
uncertainties about whether the stimulus plan by U.S. President
Barack Obama could save the economy from a prolonged recession.
[]
PLUNGE
Weakness in gold demand from traditional centers of jewelry
buying, such as India, the Middle East and China, was also
worrying traders, analysts said.
India's gold imports plunged by more than 90 percent to 1.2
tonnes in January, the Bombay Bullion Association said on
Thursday, due to high prices and ample stocks. []
Demand for gold has been buoyed by investment in
bullion-backed products such as exchange-traded funds.
The world's largest gold ETF, the SPDR Gold Trust, saw
strong inflows last week that took it to record levels, but its
holdings have been steady for the last three sessions.
Meanwhile at the World Economic Forum in Davos, Peter Munk,
head of the world's biggest gold miner Barrick Gold Corp
<ABX.TO>, said he thought gold prices were likely to hit new
highs this year as the dollar weakened. []
Interest in gold as a safe haven is still expected to boost
investment demand this year, keeping prices steady in the face
of the global downturn that is expected to pressure other
commodities. []
Among other precious metals, silver <XAG=> was at $12.16 an
ounce, up 1.8 percent from its previous close of $11.95.
Demand for silver ETFs has also been strong, with holdings
of the largest, New York's iShares Silver Trust <SLV.A>, up 10
percent or 660 tonnes since Jan 1.
Platinum <XPT=> was at $964.00 an ounce, up 1.1 percent
from its last finish of $953.50 and palladium <XPD=> was at
$189.50 an ounce, up 0.8 percent from its previous close $188
on Wednesday.
(Reporting by Frank Tang; Editing by Marguerita Choy)
