* Recovery in stock market lends support to gold
* Bullion initially pressured by weak euro after rate cut
* SPDR Gold Trust holdings rise to record
(Recasts, updates with quotes, closing prices, adds NEW
YORK to dateline)
By Frank Tang and Jan Harvey
NEW YORK/LONDON, Jan 15 (Reuters) - Gold turned higher in
volatile trade on Thursday after falling toward the $800
support level in early sessions, helped by a stock market
rebound and a fizzled dollar rally against the euro.
Sterling Smith, vice president with FuturesOne in Chicago,
said that gold was holding key support near the $800 an ounce
area on the back of technical strength of the Standard & Poor's
500 index.
"If the stock market can rally, we can see the gold price
move up," Smith said.
U.S. stock market turned higher in afternoon trading, after
it had initially tumbled as much as 3 percent on mounting
credit fears on news of further troubles at Bank of America and
Citigroup. []
Spot gold <XAU=> was at $813.35 an ounce at 2:00 p.m. EST
(1900 GMT), up 0.4 percent compared with the last trade of
$810.55 on Wednesday.
U.S. gold futures for February delivery <GCG9> settled down
$1.50 at $807.30 an ounce on the COMEX division of the New York
Mercantile Exchange.
Gold, often seen as a secure store of value in times of
turmoil, is benefiting from the fear triggered by a spate of
poor economic data and bad news from banks that has raised the
prospect of a prolonged recession.
"Investors are buying into gold as a hedge against
inflation and turmoil in the financial markets," Deutsche Bank
trader Michael Blumenroth said. "(They think) maybe the worst
is not over."
Gold was initially pressured by a sharply weaker euro
against the dollar after the European Central Bank cut rates
for the fourth month in a row by 50 basis points. []
"The currency and the deflation arguments are taking us
down. In fact, safe-haven buying, although it was strong this
morning, is not sustaining the market," said James Steel, chief
commodity analyst at HSBC.
Sinking oil prices also weighed down on gold. Bullion
typically moves in line with crude, as it is often bought as an
inflation hedge, and the direction of the oil market is an
indicator of interest in commodities.
Oil fell slumped as much as $5 to just above $32 per barrel
after bleak figures from world markets pointed to weak demand.
[]
But investor interest in gold remains strong. Bullion
holdings of the SPDR Gold Trust in New York, the world's
largest gold-backed exchange-traded fund, rose to a record for
the second time this year. []
Demand for gold in India, the world's largest bullion
market, was also picking up as prices fall, dealers said.
On the supply side, South African gold output fell 8.7
percent in volume terms in November 2008 from a year before.
[]
ALL-TIME HIGH EYED
Metals consultancy GFMS said in the second update of its
2008 Gold Survey that gold could revisit its record high above
$1,000 an ounce by the end of June as government fiscal
stimulus efforts undermine the greenback. []
Among other precious metals, spot silver <XAG=> was at
$10.49, down 0.5 percent from its previous session close of
$10.54.
Platinum and palladium prices also fell. The platinum group
metals, which are mainly used in car manufacturing, have fallen
dramatically from their highs of early 2008 as the auto sector
has come under pressure.
Spot platinum <XPT=> was at $917.50, down 1.7 percent
compared with its last finish of $933 late in New York on
Wednesday, while palladium <XPD=> last traded at $178.00, 1.4
percent lower than its previous close of $180.50.
(Additional reporting by Chris Kelly in New York; Editing by
Marguerita Choy)
