* Gold falls as dollar rises vs euro after Chicago PMI
* Positive US economic data lifts dollar, pressures gold
* Palladium prices reach highest since July 2008
(Recasts, updates comments, closing prices, market activity,
adds NEW YORK to dateline)
By Frank Tang and Jan Harvey
NEW YORK/LONDON, Dec 30 (Reuters) - Gold fell on Wednesday
as the dollar rose on signs the U.S. economy is on a path to
recovery, denting gold's appeal as a hedge against a further
weakening of the greenback.
A strong dollar rally which started in early December has
driven the metal more than $100 below spot bullion's record
high of $1,226.10 reached on Dec. 3 after a wave of central
bank gold buying.
A U.S. report suggesting better-than-expected business
activity and improving housing data have boosted the dollar
against the euro and other major currencies, traders said.
Carlos Sanchez, precious metals analyst at CPM Group, said
that gold has been consolidating around $1,100 in the past two
weeks as major players were away or on the sidelines.
"The dollar is definitely a factor for gold's weakness. In
spite of the dollar's strength, gold is holding up well and
we've seen some increased buying activity," Sanchez said.
Spot gold <XAU=> was at $1,092 an ounce at 2:32 p.m. EST
(1932 GMT), against $1,096.55 late in New York on Tuesday.
Earlier in the session, it hit a low of $1,085.90.
U.S. February gold futures <GCG0> settled down $5.60 at
$1,092.50 an ounce on the COMEX division of the New York
Mercantile Exchange.
The greenback rose against the euro after data showing U.S.
Midwest business activity far more than expected in December.
Recent sovereign credit worries in the Euro zone also depressed
the common unit relative to the dollar.
Strength in the U.S. currency cuts gold's appeal as an
alternative asset and makes dollar-priced commodities more
expensive for holders of other currencies.
Less-liquid trading conditions between Christmas and New
Year led to weak buying sentiment in the precious metals
market, dealers said.
"Technically it looks like there is some more space on the
downside," said Michael Kempinski, a senior trader at
Commerzbank. "It is difficult to say what is going to happen
tomorrow, because the market is very thin."
Going into the new year, currency traders are focusing on
when the U.S. Federal Reserve is likely to start tightening
monetary policy.
A spate of positive economic data in recent weeks has
lifted expectations a rate rise may come sooner rather than
later. If rates are lifted, it is likely to benefit the dollar,
and consequently weigh on gold.
OIL RISE SUPPORTS
Further losses in gold were limited as oil prices rose
above $79 a barrel on a decline in U.S. fuel stocks and cold
weather in the United States. []
Gold tends to track crude prices, as the metal can be
bought as a hedge against oil-led inflation.
Investment demand for gold was firm, with the world's
largest bullion-backed exchange-traded fund, New York's SPDR
Gold Trust <GLD> reporting an inflow of just under one tonne on
Tuesday. []
Among other precious metals, silver <XAG=> was at $16.79 an
ounce against late New York Tuesday quote of $17.08, while
platinum <XPT=> was at $1,452 an ounce versus $1,462.
Palladium <XPD=> hit a peak of $396 an ounce, its highest
since July 2008, and was last at $391 against $385.50. This was
largely due to rising investment demand, analysts said.
Close Change Pct 2008 YTD
Chg Close % Chg
US gold <GCG0> 1092.50 -5.6 -0.5 884.3 23.5
US silver <SIH0> 16.802 -0.308 -1.8 11.295 48.8
US platinum <PLF0> 1452.30 -14.80 -1.0 941.50 54.3
US palladium <PAH0> 396.10 7.25 1.9 188.70 109.9
Prices at 2:53 p.m. EST (1953 GMT)
Gold <XAU=> 1092.70 -3.85 -0.4 878.20 24.4
Silver <XAG=> 16.78 -0.30 -1.8 11.30 48.5
Platinum <XPT=> 1448.00 -14.00 -1.0 924.50 56.6
Palladium <XPD=> 391.00 5.500 1.4 184.50 111.9
Gold Fix <XAUFIX=> 1087.50 -5.00 -0.5 836.50 30.0
Silver Fix <XAGFIX=> 16.92 -50.00 -2.9 14.76 14.6
Platinum Fix <XPTFIX=> 1461.00 3.00 0.2 1529 -4.4
Palladium Fix<XPDFIX=> 393.00 2.00 0.5 365.0 7.7
(Reporting by Frank Tang and Jan Harvey)
