* Dollar regains some lost ground vs the euro
* Crude falls $2 a barrel after historic one-day surge
* SPDR Gold Trust bullion holdings hit record
(Recasts, updates throughout, changes dateline, pvs SINGAPORE)
By Jan Harvey
LONDON, Sept 23 (Reuters) - Gold fell 1 percent in Europe on
Tuesday as the dollar recovered some lost ground versus the euro
and investors took profits after the previous session's gains.
But with concerns remaining about the impact of the U.S.
government's proposed $700 bailout of the financial system, gold
may be poised to trend higher, traders say.
Spot gold <XAU=> was at $889.90/891.90 an ounce by 0856 GMT,
down 1 percent from $900.20 an ounce at the nominal New York
close on Monday.
"Yesterday, we had a real up day in commodities in general,
whether oil or gold," said Afshin Nabavi, head of trading at MKS
Finance in Geneva. "Today, there is a bit of profit taking."
"We still have to wait and see what the stock markets will
do in Europe and the States," he said. "But buying on dips
should be the name of the game."
The government's $700 billion rescue plan for the financial
sector initially cheered the markets, but pressured equities and
the dollar in later trade as investors worried about its
budgetary implications and doubted it would prevent recession.
The weaker dollar boosted buying interest in gold and
precious metals as an alternative investment. Volatility in the
equity markets also prompted investors to switch out of stocks
in favour of safer assets.
While investors are taking the opportunity to book profits,
bullion is likely to turn higher if the dollar fails to recover.
"Despite its high volatility, gold's safe haven qualities
are clearly attractive to investors, particularly in light of
expected weakness of the U.S. dollar," Fairfax analyst John
Meyer said.
Traders will be watching U.S. and euro zone economic data
due out later in the session, and the testimony of U.S. Treasury
Secretary Paulson and Federdal Reserve Chairman Bernanke before
the Senate Banking Committee, for signs of where the dollar will
move.
For the moment, the U.S. currency is near session highs
against the euro after contracting euro zone manufacturing
activity focused attention on weakness in the euro area.
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CRUDE SLIDES
Gold's losses mirrored those of crude oil, which slipped
more than $2 a barrel on Tuesday after a record one-day rise in
dollar terms in the previous session. []
Pricier crude tends to push gold prices higher because the
precious metal is often bought as a hedge against oil-led
inflation. Rising oil prices also boost confidence in
commodities as a whole.
Investment demand has been strong. The world's largest
gold-backed exchange-traded fund, the SPDR Gold Trust <GLD> saw
a 30.2-inflow on Monday that brought its gold holdings to a
record 709.62 tonnes. []
Buying for ETFs, which issue securities backed by physical
bullion, represents a major source of demand for gold.
Silver tracked gold lower, slipping 2.5 percent to a session
low of $13.07 an ounce. Spot silver <XAG=> was later at
$13.30/13.37 against $13.40.
Among other precious metals, spot platinum <XPT=> was
trading at $1,213.50/1,233.50 against $1,244.50, while palladium
<XPD=> edged down to $251.50/256.50 from $253.50.
"Momentum has slowed down overnight -- palladium therefore
could be vulnerable to a slowdown in platinum group metals
today," Standard Bank analyst Manqoba Madinane said in a note.
(Reporting by Jan Harvey; editing by Karen Foster)
