* Dollar index makes up lost ground after year-low
* Physical gold demand lacklustre as prices rise
* Base metals slide adds to pressure on silver
(Updates prices, adds comment)
By Jan Harvey
LONDON, Sept 14 (Reuters) - Gold came under pressure in
Europe on Monday from a recovery in the dollar index <.DXY> and
fears the metal's run-up to 18-month highs last week was
overdone.
The precious metal recovered some of its early losses,
however, as the dollar retreated from highs, allowing prices to
rise back towards $1,000 an ounce.
Spot gold <XAU=> hit $997.60 an ounce at 1412 GMT against
$1,004.85 late in New York on Friday. U.S. gold futures for
December delivery <GCZ9> on the COMEX division of the New York
Mercantile Exchange fell $6.40 to $1,000 an ounce.
The dollar index <.DXY> gave up some of its earlier gains in
early afternoon trade, but remained firmer as risk-averse
investors shied away from higher-yielding currencies. []
A stronger U.S. currency typically weighs on gold, as the
precious metal is often bought as an alternative to the dollar.
Last week the dollar's slide to one-year lows against a currency
basket sparked a rise back above $1,000 an ounce.
Gold's climb to 18-month highs of $1,1011.55 on Friday was
accompanied by a sharp rise in net long positions on the COMEX
futures market without a corresponding surge in physical demand,
leading to fears the market could see a sharp correction.
Inflows into gold exchange-traded funds have slowed sharply
since record levels of buying in the first quarter. The largest,
New York's SPDR Gold Trust, said its holdings were unchanged on
Friday for a fifth session [], although some others have
continued to see modest growth.
"We have seen a mixture of (rising) ETF positions and
short-term speculative positions on COMEX driving prices,
whereas at the start of the year we saw a very strong build in
ETF positions," said Barclays Capital analyst Suki Cooper.
"If we continue to see that build in investment interest,
prices will be maintained, but given how high and how strong
those levels are, a potential correction could be in the
offing."
CURRENCY GAINS
Dollar-priced commodities almost across the board suffered
on Monday as gains in the U.S. currency made them more expensive
for other currency holders, with oil and base metals slipping.
[] []
Weakness in crude prices can weigh on gold, which is often
bought as a hedge against oil-led inflation.
On other markets, Wall Street opened lower and European
stocks declined, with weaker macroeconomic data and a trade row
between the United States and China weighing on buying interest.
[] [] []
David Wilson, an analyst at Societe Generale, said gold was
suffering from a recovery in the dollar and its technical break
higher through key resistance levels was running out of steam.
"I think we'll settle back to a lower range, with support
around $960 an ounce," he said. "India's jewellery demand has
dropped off again, showing weaker physical demand, while there
hasn't been any momentum from ETFs."
Among other precious metals, silver <XAG=> was at $16.49 an
ounce against $16.74, as a decline in base metals added to the
downward momentum sparked by falling gold prices.
Platinum <XPT=> was at $1,312 an ounce against $1,315.50,
while palladium <XPD=> was at $290 against $290.
South Africa's National Union of Mineworkers said on Monday
its members at Anglo Platinum <AMSJ.J>, the world's top platinum
producer, had agreed to a one-year wage deal, averting a
possible strike. []
(Additional reporting by Jane Grieve; Editing by Anthony
Barker)
