PRECIOUS-Gold turns higher as dollar gives up gains

                                
 * Dollar index turns lower after strong U.S. retail sales
                                
 * SPDR Gold Trust ETF holdings edge higher
                                
 * GFMS sees gold prices correcting before push higher
                                
 (Updates with New York prices, comment. Changes byline,
adds NEW YORK to dateline)
                                
 By Carole Vaporean and Jan Harvey
                                
 NEW YORK/LONDON, Sept 15 (Reuters) - Gold reversed early
losses to post moderate gains on Tuesday, turning up when the
dollar reversed its early advance. Gold also got support from a
strong U.S. retail sales reading that implied economic growth
and possible inflationary environment down the road, traders
said.
                                
 Gold held just below $1,000 an ounce in early dealings as
the metal consolidated its run up to 18-month highs hit late
last week.
                                
 Spot gold <XAU=> touched a low of $991.90, but firmed to
$1,006.75 an ounce by 3:30 EDT (1930 GMT) from $997.95 an ounce
in late Monday trade in New York.
                                
 In New York, December gold <GCZ9> rose $5.20 to $1,006.30
an ounce by the close of the COMEX division of the New York
Mercantile Exchange.
                                
 "(Gold) turned higher predominantly on the perception of a
weakening dollar, higher oil prices, on better-than-expected
retail sales and reduced inventory," said Frank McGhee, head
precious metals trader at Integrated Brokerage Services LLC.
                                
 The U.S. dollar edged lower against a basket of currencies
as gains in global stock markets reduced the greenback's appeal
as a safe haven. [USD/]
                                
 Sales at U.S. retailers rose at their fastest pace in 3-1/2
years in August as government-sponsored auto incentives buoyed
demand for motor vehicles, according to U.S. data. Sales
outside the auto sector also were strong. [ID:nN14478930].
                                
 Gold's upswing was also due to the potential for increased
inflation, with concerns augmented after the latest U.S.
government series came in stronger than projected.
                                
 "With increased overall economic activity," McGhee added,
"You've now got a continuing situation of a reinflation of the
economy without the ability of the government to tighten as
they would in a normal environment."
                                
 U.S. producer prices rose more than twice as much as
expected in August on the biggest surge in gasoline prices in
more than 10 years. Prices declined less than expected compared
with a year ago, a government report showed. [ID:nN15543702]
                                
 Strong technical readings also gave gold a boost, with
investor demand for gold remaining healthy, traders.
                                
 "From a technical standpoint, the backing and filling on
the charts is excellent. And I just think it's a question of
time before we try to move up towards that $1,033 resistance
level," said Bill O'Neill, managing partner at LOGIC Advisors
in New Jersey,
                                
 Dollar weakness helps interest in bullion as an alternative
asset and makes it cheaper for non-U.S. investors.
                                
 With the market consolidating its recent 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 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. [ID:nLE549254]
                                
 "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 said. "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. [GOL/SPDR]
                                
 They are also hoping for an increase in jewelry demand from
key markets such as India and the Middle East, which have been
weak this year as local gold prices in many areas rose.
                                
 Among other precious metals, silver <XAG=> was at $17 an
ounce against $16.51 late on Monday. Platinum <XPT=> was at
$1,324.50 an ounce versus $1,313.50, and palladium <XPD=> at
$291.50 versus $291.
 (Reporting by Jan Harvey and Carole Vaporean; Editing by Lisa
Shumaker)