* Dollar takes little reassurance from World Bank, IMF meets
* Further U.S. quantitative easing still seen on the cards
* Gold:silver ratio falls to lowest since Aug. 2008
(Updates prices, adds comment)
By Jan Harvey
LONDON, Oct 11 (Reuters) - Gold steadied in Europe on
Monday, surrendering earlier gains, in line with a slight
recovery in the dollar from its early lows as investors worried
that positions in the U.S. unit. were becoming stretched.
The dollar has lost significant ground in recent weeks due
to expectations the United States will introduce further
monetary easing after a spate of soft economic data. This helped
push gold prices to a record $1,364.60 an ounce last week.
Spot gold <XAU=> was bid at $1,341.40 an ounce at 1255 GMT,
against $1,343.25 late in New York on Friday. U.S. gold futures
for December delivery <GCZ0> eased $3.00 an ounce to $1,342.20.
Afshin Nabavi, head of trading at MKS Finance in Geneva,
said he remains broadly positive on gold, with the dollar the
main driver of the market.
"$1,339-$1,340 ought to remain a good support," he said. "A
breach of that could send us to $1,335, but I still think $1,400
a good possibility for the year-end."
"This move is probably a correction in a thin market with
some of the New York guys absent," he said, referring to
Monday's holiday in the United States.
The dollar pared losses versus the euro after slipping
earlier on Monday. World finance ministers failed to reach
agreement on currency imbalances at a series of meetings this
weekend, leaving the U.S. Federal Reserve set to pursue loose
monetary policy to support its ailing economy. []
This would likely keep the dollar under pressure.
Historically a weaker dollar boosts gold, as it makes
dollar-priced commodities cheaper for other currency holders and
lifts the metal's appeal as an alternative asset.
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Graphic on gold's correlation with the dollar:
http://graphics.thomsonreuters.com/gfx1/SBrb_20101110115325.jpg
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UNEQUIVOCAL BENEFIT
"We view quantitative easing and its monetary consequences
as an unequivocal benefit for gold and silver in particular, as
investors seek out their role as stores of value in times of
fiat currency risk," said Morgan Stanley in a note.
As well as currency effects, gold is being supported by
expectations investors will add to their bullion holdings as a
portfolio diversifier, both in the private and official sectors.
Russia's central bank has bought over 100 tonnes of gold on
the domestic market this year, board member Sergei Shvetsov said
on Monday, and speculation is rife that other central banks,
mainly in Asia, will also lift their holdings. []
Gold supply is struggling to meet rising demand. Output in
number one producer China was 27.655 tonnes in August, the
Ministry of Industry and Information Technology said on Monday,
down 11 percent from 31.059 tonnes in July. []
Silver <XAG=> hit its highest level since 1980 at $23.65 an
ounce and was later bid at $23.08 an ounce against $23.20.
Holdings in the iShares Silver Trust <SLV>, the world's
largest silver-backed exchange-traded fund, rose to a new
all-time high at 10,085.62 tonnes on Friday. []
The gold-silver ratio - the number of ounces of silver
needed to buy an ounce of gold - fell to its lowest in more than
two years on Monday near 57, down from above 68 in late August,
as silver became increasingly expensive compared with gold.
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For a graphic on the ratio, click:
http://graphics.thomsonreuters.com/AS/0810/RS_20101110113030.jpg
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"We continue to favour silver as industrial demand and
imports into China are expected to push the gold/silver ratio
lower," said Deutsche Bank in a weekly note.
Platinum <XPT=> was at $1,684 an ounce against $1,699.35,
and palladium <XPD=> at $587.50 against $583.53.
(Reporting by Jan Harvey; editing by Sue Thomas)
