* Gold prices recover poise as dollar weakens
* Dollar edges lower vs euro, European stocks bounce back
* Indian buyers hunt bargains; U.S. gold ETF sees outflows
(Updates throughout, changes dateline from TOKYO)
By Jan Harvey
LONDON, Oct 27 (Reuters) - Gold prices rallied from
three-week lows in Europe on Tuesday, with the metal's appeal to
investors heightened as the dollar resumed its broad decline
against a basket of major currencies.
But with physical demand still weak at higher prices and the
technical picture less supportive than previously, the precious
metal could be at risk of a deeper correction, analysts said.
Spot gold was bid at $1,040.05 an ounce at 1034 GMT, against
$1,037.10 late in New York on Monday. U.S. gold futures for
December delivery <GCZ9> on the COMEX division of the New York
Mercantile Exchange eased $2.10 to $1,040.70 an ounce.
"It looks as if there is some more consolidation on the
way," said Deutsche Bank trader Michael Blumenroth. "In the
longer term I still think we could see gold higher but for now
it looks a little more vulnerable, especially now we have the
euro going in the direction of $1.4850."
"(Resistance at) $1,030-1,020 should hold and we should go
higher again, but everything depends on the euro-dollar."
The dollar slipped against the euro on Tuesday, rolling back
some of the previous day's gains, as the yield on 10-year U.S.
government bonds retreated from a two-month high. []
Bond yields rose on Monday on speculation the Fed may signal
a tightening of monetary policy. The news lifted the dollar and
pressured gold, which fell to its lowest since early October,
undermining short-term chart support for prices.
"The market pulled back through the $1,041/43 support area,
which was holding firm on repeated attempts since early
October," said Barclays Capital in a note.
"The move points to further corrective activity this week,
though it does not alter our greater bullish bias for a test of
$1,100 next month," it added.
BARGAINS SOUGHT
On the wider markets, European stocks edged higher, though
emerging market and Japanese shares dropped in Asian trade after
a sell-off on Wall Street. Firmer stocks can divert interest in
the dollar, helping gold. [] []
Oil meanwhile held below $79 a barrel after three straight
days of declines, as investors awaited direction from equities
and U.S. oil inventory data. []
In the physical gold market, a dip in prices has sparked
some bargain hunting activity in major gold consumer India,
though the weak rupee weighed on prices. Jewellery buying has
been weak this year as high prices deterred investors.
"(Traders) would buy in huge quantities if prices move
towards $1,033," said one Mumbai gold dealer. []
In New York, the world's biggest gold-backed exchange-traded
fund, the SPDR Gold Trust <GLD>, said it saw an outflow of 1.22
tonnes on Monday. Investment demand for products like ETFs has
been a major support to prices this year. []
Among other precious metals, spot silver <XAG=> was bid at
$17.07 an ounce against $17.05, platinum <XPT=> was at $1,326.50
an ounce against $1,330.50, and palladium <XPD=> was at $328
against $329.50.
Aquarius Platinum <AQP.L>, the world's fourth biggest
platinum producer, warned a strong South African rand was
erating gains from rising metals prices, even as it reported a
swing into profit in the first quarter. []
"This quarter's results reflect reduced volatility in
platinum group metals prices, which have gradually risen from
the low base experienced in October-December 2008," chief
executive Stuart Murray said.
(Reporting by Jan Harvey; Editing by Veronica Brown)
