* U.S. March CPI data shows surprise drop in consumer prices
* Dollar firms to session highs versus the euro
(Releads, updates prices)
By Jan Harvey
LONDON, April 15 (Reuters) - Gold steadied on Wednesday,
recovering earlier losses, as traders put aside initial concerns
that a surprise drop in U.S. inflation could point to a more
sustained phase of falling prices, denting gold's allure as an
inflation hedge.
The dollar's nudge off highs against the euro also relieved
downward pressure on gold, which is often bought as an
alternative investment to the U.S. currency.
Prices remain rangebound amid conflicting signals on
inflation and the outlook for equities, analysts said.
Spot gold <XAU=> was bid at $890.25 an ounce at 1522 GMT
against $888.85 late in New York on Tuesday. U.S. gold futures
for April delivery <GCJ9> on the COMEX division of the New York
Mercantile Exchange rose 10 cents to $891.00 an ounce.
U.S. inflation data for March showed a dip of 0.1 percent in
the consumer price index, against expectations for a rise of 0.1
percent. Consumer prices recorded their first annual drop since
1955. []
"Short term, these figures are obviously not bullish for
gold, but in the longer term you have to look past the current
fall in inflation," said Standard Bank analyst Walter de Wet.
"With all the quantitative easing and low interest rates,
inflation is going to head up again. That is why gold only moved
a few dollars."
The precious metal is often bought as a hedge against rising
inflation, and prices can be dented by deflationary signals.
On the foreign exchange markets, the dollar edged a touch
off the session highs it reached versus the euro in the wake of
the numbers, but remained stronger. []
A firmer dollar tends to weigh on gold, which is often
bought as an alternative investment to the U.S. currency. []
The euro earlier fell against the dollar after European
Central Bank Governing Council member Axel Weber said the
central bank will announce a package of "non-standard measures"
in May.
Equity markets also moved higher, helped by a
better-than-expected report on manufacturing activity in New
York state. []
Gold remains largely rangebound as buyers await clearer
signals on the outlook for the financial sector and the equity
markets. Any rise in risk aversion is likely to benefit gold.
IMPACT
"We are stuck in a range here," said Saxo Bank senior
manager Ole Hansen.
"As we are trading sideways, obviously technical levels will
have an impact," he said. "Above $900 (we could) move up to
$918, and below $885 we could see some selling return to the
market, which could take us down to $865, and maybe to $850."
Investment demand remains tentative, with holdings of the
world's largest gold-backed exchange-traded fund, the SPDR Gold
Trust <GLD>, unchanged on Tuesday from last Thursday. []
"With further strong resistance anticipated around $900,
upside momentum may be curtailed until ETF and investment demand
picks up again," said TheBullionDesk.com analyst James Moore.
However, gold demand in India, the world's largest bullion
market, firmed as traders stocked up ahead of the Hindu festival
of Akshaya Tritya on April 27. []
Among other precious metals, spot platinum <XPT=> was bid at
$1,214 an ounce against $1,204 late on Tuesday, while spot
palladium <XPD=> was bid at $231 an ounce against $230.
The two metals are consolidating after gains that took them
to multi-month highs, after ETF Securities filed to register the
first ETFs backed by platinum and palladium in the U.S. market.
Spot silver <XAG=> was bid at $12.73 an ounce against
$12.72.
Rhodium <RHOD-LON>, used in autocatalysts, also climbed 9
percent, helped by gains in other platinum group metals and amid
hopes the downturn in the car industry may be bottoming out.
[]
(Reporting by Jan Harvey; Editing by Keiron Henderson)
