* Sharp bounce in stocks reduces gold's safe haven appeal
* Dollar strengthens on bailout plan optimism
* Silver, platinum, palladium tumble as demand fears bite
(Recasts, updates with quotes, closing prices, market
activity, adds NEW YORK to dateline)
By Frank Tang and Jan Harvey
NEW YORK/LONDON, Sept 30 (Reuters) - Gold retreated sharply
Tuesday as a sharp rally in stocks and a higher dollar erased
the previous session's gains, but gold should rise in the near
term because of its safe-haven appeal amid financial turmoil,
traders said.
Spot gold <XAU=> was quoted at $867.10/870.30 an ounce at
3:00 p.m. EDT (1900 GMT), down 4 percent from gold's nominal
Monday close at $903.25. Earlier, it hit a session low of
$879.70.
"In a situation where the dollar is strengthening against
the euro, and the markets are calming down after yesterday's
tension, you will see an impact on the precious metals," said
Dresdner Kleinwort consultant Peter Fertig.
The dollar jumped as shock over U.S. lawmakers' rejection
of a $700 billion financial sector bailout plan gave way to
cautious optimism that they may yet reach agreement. []
"As credit conditions deteriorate, I would have expected
weakness in the dollar, which would have encouraged the gold
price. I don't fully understand why the dollar is so strong,"
said Caesar Bryan, portfolio manager of the $450-million GAMCO
Gold Fund in New York.
"I think people will turn to gold when they begin to
understand the cost of the bailout and the weak capitalization
of the banking system," Bryan said.
Safe haven assets such as treasury bills and gold soared on
Monday in the wake of the rejection of the plan, with the
precious metal rocketing nearly 5 percent to a two-month high
of $920 an ounce.
However gold failed to hold gains, with the traditional
safe-haven metal falling victim to selling pressure as
investors took profits. But despite this, analysts said gold
was still outperforming other assets.
"If the financial conditions continue to worsen, gold
prices are likely to go higher amid safe-haven demand," said
David Rinehimer, director of Citi Futures Perspective in New
York.
U.S. gold contract for December delivery <GCZ8> settled
down $13.60, or 1.5 percent, at $880.80 an ounce on the COMEX
division of the New York Mercantile Exchange.
LBMA SEES GOLD HIGHER
Investment demand appeared firm. The SPDR Gold Trust <GLD>,
the world's largest gold-backed exchange traded fund, saw an
inflow of nearly 30 tonnes on Monday, which took its holdings
to a record high of 752.2 tonnes. []
A poll of delegates to the London Bullion Market
Association annual conference in Kyoto showed they believe spot
gold will rise by about 6 percent to $958.60 by November 2009,
while platinum and palladium prices are expected to soar.
[]
The other precious metals also slipped sharply. Silver,
platinum and palladium have not benefited as gold has from
safe-haven buying. They have been battered by demand fears as
investors worry about the outlook for global growth.
Spot silver tracked gold to fall sharply to $11.96/12.06 an
ounce, down 8.5 percent from Monday's nominal close of $13.07.
The platinum group metals slipped sharply as investors
worried about the outlook for demand from car makers, who are
major consumers of the metals for use in catalytic converters.
Platinum fell almost 9 percent to a session low of $982.50
an ounce, its weakest level since February 2006, while
palladium slipped to $191 an ounce, a new three-year low.
"Platinum is largely an industrial metal with its main
market being in autocatalysts," Fairfax analyst John Meyer
said.
"Consequently, despite being a precious metal it does not
benefit in the same way as gold does during periods of
weakening economies."
Spot platinum <XPT=> was down at $1,001.50/1,021.50 from
$1,080 an ounce at the nominal New York close on Monday, while
palladium <XPD=> fell to $195.50/203.50 from $211.50 late on
Monday.
(Editing by Jim Marshall)
