* Dollar index rises after U.S. Aug retail sales data
* SPDR Gold Trust ETF holdings edge higher
* GFMS sees gold prices correcting before push higher
(Releads, adds comment, updates prices)
By Jan Harvey
LONDON, Sept 15 (Reuters) - Gold briefly slipped below $995
an ounce on Tuesday as the dollar index <.DXY> extended gains
after data showed U.S. retail sales grew more than expected in
August, boosting hopes the economy is on the way to recovery.
Spot gold <XAU=> touched a low of $991.90 and was bid at
$995.50 an ounce at 1320 GMT against $998.65 late on Monday.
The metal shrugged off a larger-than-expected rise in the
U.S. producer price index, a key inflation gauge. Standard Bank
analyst Walter de Wet said the market was awaiting U.S. consumer
price data on Wednesday before taking a view on gold as an
inflation hedge.
"You should not look at PPI independently," he said. "You
should also wait for what is happening with CPI tomorrow,
because that is ultimately what consumers pay."
De Wet said gold was sensitive to the currency markets, but
that brief periods of strength in the dollar did not detract
from an overall trend towards a softer U.S. currency.
"We expect the general trend to be towards more dollar
weakness, but we have seen so much weakness over the last three
weeks that a small correction cannot be ruled out," he said.
The dollar index, which measures the currency's performance
against a basket of six major currencies, climbed 0.26 percent
on Wednesday as dollar bulls were cheered by the retail sales
numbers. []
Dollar strength curbs interest in bullion as an alternative
asset, and makes it more expensive for non-U.S. investors.
The metal has held onto the bulk of gains that last week
took the metal to 18-month highs of $1,011.55 an ounce, due to
expectations that in the longer term rising inflation and
overall dollar weakness will spark an upward move.
With the market needing fresh impetus for a push higher,
both the currency and physical markets are being closely eyed.
"We are now entering a period when gold is usually stronger
on a seasonal basis," said Peter Fertig, a consultant at
Germany's Quantitative Commodity Research.
"Typically the dollar is weak against the euro in the last
quarter, so seasonal factors are still arguing that this is just
a consolidation, and that gold is likely to move further upwards
towards all-time highs."
CORRECTION EYED
In an update to its 2009 Gold Report, metals consultancy
GFMS said late on Monday that gold prices are likely to correct
after their recent run higher, but could rebound as high as
$1,100 an ounce in the next six months. []
"The market has been driven up very much by short term
speculation," said GFMS chairman Philip Klapwijk. "We've seen
net long positions on the COMEX reach record levels on the 8th
of this month and position length has only grown since then."
"On the other hand, I think the dollar is looking a little
bit oversold," he added. "I think we are going to see a fairly
significant correction take place in the gold price in the short
term."
Gold bugs were cheered by a 1.221-tonne rise in holdings of
the largest gold-backed exchange-traded fund, New York's SPDR
Gold Trust <GLD>, after five sessions of stability. []
They are also hoping for an uptick in jewellery demand from
key markets such as India and the Middle East, which has been
weak this year as local gold prices in many areas rose.
U.S. gold futures for December delivery <GCZ9> on the COMEX
division of the New York Mercantile Exchange eased $3.70 to
$997.50 an ounce.
Among other precious metals, silver <XAG=> was at $16.57 an
ounce against $16.51 late on Monday. Platinum <XPT=> was at
$1,300 an ounce versus $1,313.50 and palladium <XPD=> at $288.50
versus $291.
(Reporting by Jan Harvey; Editing by Peter Blackburn)
