* Dollar recovers from lows versus currency basket
* SPDR ETF sees outflow but physical demand expected on dip
* Platinum, palladium seen supported by firm fundamentals
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By Jan Harvey
LONDON, Oct 20 (Reuters) - Gold firmed on Wednesday as
dollar weakness helped the metal recover from the previous
session's 2.5 percent slide, with the softer U.S. currency
boosting interest in the metal as a safe store of value.
Spot gold <XAU=> was bid at $1,341.55 an ounce at 1352 GMT,
against $1,336.00 late in New York on Tuesday. U.S. gold futures
for December delivery <GCZ0> rose $5.70 an ounce to $1,341.70.
The precious metal recorded its biggest one-day loss since
July 1 on Tuesday after China raised its benchmark interest
rates by 25 basis points, sparking a dollar recovery.
It met with good buying in early European trade as market
watchers looked ahead to a Federal Reserve policy meeting on
Nov. 2, at which the bank is expected to discuss the prospect of
extending its quantitative easing programme.
But the metal remains fragile after a hefty rally since late
July that took it to record highs at $1,387.10.
"It might not be the end of the correction," said Citigroup
analyst David Thurtell. "The dollar had fallen a long way and...
the risk for precious metals is from a rebound in the dollar."
"The fall has given people a bit of food for thought. People
have viewed this as a bit of a one-way ticket and last night and
yesterday's move shows that it is not."
The dollar index, which measures the U.S. unit's performance
against a basket of currencies, was down 0.6 percent in
mid-afternoon trade as appetite for higher-yielding currencies
stabilised after China's surprise interest rate hike. []
Gold typically moves in a close inverse relationship with
the dollar, with strength in the U.S. unit curbing gold's appeal
as an alternative asset and making dollar-priced commodities
more expensive for holders of other currencies.
Tuesday also saw a further decline in holdings of the
world's largest gold-backed exchange-traded fund, New York's
SPDR Gold Trust <GLD>, which fell by nearly 1 tonne, its tenth
daily outflow in 16 sessions. []
PHYSICAL DEMAND EXPECTED
Gold's descent is likely to meet physical buying from
price-sensitive bullion markets like India, the world's biggest
consumer of gold, analysts said.
"It is in the trading sessions subsequent to an investor
stampede for the exit that physical demand becomes very
important," said Swiss bank UBS in a note.
"We would look for it to accelerate today. Early indicators
are quite positive with physical demand from Asia ex-India
initially in the low $1,330s helping to put a floor under gold
around that level."
Silver <XAG=> was at $23.80 an ounce against $23.32, having
also slipped by the most since July 1 on Tuesday with a 4.1
percent fall. It is still one of the biggest climbers of the
precious metals so far this year, up 41 percent.
Platinum <XPT=> was at $1,672 an ounce against $1,667.50,
while palladium <XPD=> was at $582.49 against $573.08.
The white metals also fell on Tuesday in gold's wake, but
analysts say their firm underlying fundamentals are expected to
lend support.
Demand for the autocatalyst metals is expected to improve
this year as the car industry continues its recovery, while mine
supply in South Africa is expected to be constrained.
"Demand (for platinum) from auto catalyst producers has been
rebounding this year," said Bank of America-Merrill Lynch in a
report. "We forecast a deficit for 2010 and 2011."
(Editing by James Jukwey)
