* Dollar firms as euro retreats from 7-week highs
* China says gold won't be major part of currency reserves
* Indian buyers rush to buy gold after price fall
(Releads, updates prices, adds comment)
By Jan Harvey
LONDON, July 7 (Reuters) - Gold edged higher on Wednesday,
rising back above $1,190 an ounce, as fresh demand emerged for
the precious metal after its correction from recent record
highs, which helped offset pressure from a firmer dollar.
Chart support around $1,180 an ounce has also helped limit
losses in gold, analysts said.
Spot gold <XAU=> was bid at $1,193.35 an ounce at 1352 GMT,
against $1,191.50 late in New York on Tuesday. U.S. gold futures
for August delivery <GCQ0> were down $1.50 to $1,193.50.
"The general feeling is still of insecurity, and given the
drop, people might see (gold) as a bargain, probably more on the
speculative side than on the long-term investment side," said
Wolfgang Wrzesniok-Rossbach, head of sales at Heraeus.
Gold has fallen some 6 percent from the record high at
$1,264.90 an ounce it hit in late June, which has tempted some
buyers back to the market.
In India, the world's biggest gold consumer, jewellers
bought stocks ahead of religious festivals, and other physical
buyers in Asia snapped up bullion after prices fell. []
On the wider financial markets, the dollar firmed versus the
euro, as the single currency slipped on concerns about the
global economic recovery and as investors scrutinised details of
plans to test the financial health of European banks. []
Although the usual inverse link between gold and the dollar
weakened earlier this year as both benefited from risk aversion,
a stronger U.S. currency usually makes dollar-priced metals more
expensive for holders of other currencies.
Elsewhere European shares turned positive as banks pared
losses on optimism that results from impending stress tests may
not be as bad as feared. []
CHINA MULLED
Gold earlier slipped to a session low of $1,185.05, its
weakest since late May, after China's State Administration of
Foreign Exchange said gold will not become a major component of
the central bank's portfolio. []
However, analysts said given the size of China's currency
reserves, it was unsurprising gold would play only a relatively
minor role in its portfolio, and that the news was unlikely to
detract from central bank interest in gold if prices fell.
"China has $2 trillion in currency reserves, so it is simply
not possible for them to invest a major part of this in gold --
the gold isn't there," said Commerzbank analyst Daniel
Briesemann.
"I am convinced they will increase their gold holdings if
prices fall further. I don't expect gold to fall below $1,000,
but if that happened...China would step in and buy gold."
The market also found good technical support above the
$1,180 an ounce area, analysts said, with gold's longer-term
uptrend likely to resume once the correction had run its course.
"With daily momentum oscillators posting their first
oversold readings since March, we look for renewed signs of
basing ahead of resumption of the cyclical bull trend, which is
still very much intact," Barclays Capital said in a note.
"Bulls need to regain the 21-day averages at 997
(euros)/$1,231 to regain control."
In New York, holdings of the world's largest gold-backed
exchange-traded fund, New York's SPDR Gold Trust <GLD>, dipped
further on Tuesday to 1,316.481 tonnes. []
The SPDR's holdings have fallen 3.955 tonnes from a record
1,320.436 tonnes at the end of June, against a rise of 18.429
tonnes in the same period of the previous month.
Silver <XAG=> was at $17.77 an ounce versus $17.78, while
platinum <XPT=> was at $1,507 an ounce against $1,512.50 and
palladium <XPD=> rose to $438.50 versus $435.
(Additional reporting by Pratima Desai; editing by Anthony
Barker)
