* Dollar bounce keeps gold investors on sidelines
* Deeper correction in gold prices seen possible
* Investors take profits, strong demand season ahead
(Recasts, adds comments, updates prices, market activity,
adds second byline, dateline)
By Frank Tang and Veronica Brown
NEW YORK/LONDON, Sept 29 (Reuters) - Gold rose in mixed
trade on Tuesday as a dollar bounce kept bullion investors
largely on the sidelines, but short-term consolidation could
continue following a recent rally.
Analysts said that technical support should keep the metal
from falling further after it failed to break above $1,020 an
ounce last week, but others said bullion could be vulnerable to
a sell-off due to speculative positioning in the futures
market.
David Meger, director of metals trading with Vision
Financial Markets in Chicago, said that gold weakened after the
recent rally and absent any strong jewelry demand.
"It's not surprising to see a little profit taking going
into September. I would expect a continuation, erring on the
side of consolidation for the gold market," he said.
Gold's physical demand is typically the strongest in the
fourth quarters because of the Hindu and Muslim festivals --
major gold-buying events -- and the holiday season in the
Western world.
U.S. December gold futures <GCZ9> settled up 30 cents at
$994.40 an ounce on the COMEX division of the New York
Mercantile Exchange.
Spot gold <XAU=> was at $992.60 at 2:40 p.m. EDT (1840 GMT)
from $989.95 late in New York on Monday.
Gold recovered some poise as the dollar trimmed gains after
an unexpected fall in U.S. consumer confidence in September,
but overall the precious metal remains under pressure, analysts
said. [] []
That is because the U.S. currency has mostly been on an
upward trajectory since last week, making commodities priced in
dollars more expensive for holders of other currencies.
"Short term it's the dollar and not much else ... the
dollar has strengthened," said Robin Bhar, analyst at Calyon.
Gold prices are up more than 10 percent so far this year,
with the most recent leg higher driven by dollar weakness,
technical momentum and concerns about potential inflation.
However, the weight of speculative long positions in New
York could prove to be its undoing.
The noncommercial net long position -- buying to profit
from further gains -- in gold futures on the COMEX division of
the New York Mercantile Exchange stood at an all-time high of
236,749 lots for the week ended Sept. 22. []
"These (long positions) make the metal vulnerable to the
downside, if upside momentum slows down further and weak longs
start liquidating," said Alexander Zumpfe, senior precious
metals trader at Heraeus in Germany.
OUT OF FAVOR?
Bullion rallied to an 18-month high of $1,023.85 an ounce
earlier this month, just a few dollars shy of the March 2008
record high of $1,030.80.
It fell below the key $1,000 mark last week on a bout of
heavy selling, prompted in part by an absence of physical
buying of gold due to near record-high prices.
"A certain hesitancy has emerged amongst fast money to buy
gold ... due to fears of excess long positioning in COMEX,
concerns about the sustainability of both dollar weakness and
the broader trend of risk asset strength," UBS said in a note.
"We continue to expect a deeper correction in gold and
silver in coming weeks.."
In other precious metals silver stood at $16.14 per ounce
<XAG=>, flat from its previous finish in New York on Monday.
Spot palladium <XPD=> was at $286, also unchanged from its
previous close on Tuesday, while platinum <XPT=> was at
$1,266.50, down from $1,273.50.
Close Change Pct 2008 YTD
Chg Close % Chg
US gold <GCZ9> 994.40 0.3 0.0 884.3 12.5
US silver <SIZ9> 16.178 -0.017 -0.1 11.295 43.2
US platinum <PLF0> 1278.20 -12.60 -1.0 941.50 35.8
US palladium <PAZ9> 290.00 -3.90 -1.3 188.70 53.7
Prices at 2:40 p.m. EDT (1840 GMT)
Gold <XAU=> 992.60 2.65 0.3 878.20 13.0
Silver <XAG=> 16.14 0.00 0.0 11.30 42.8
Platinum <XPT=> 1266.50 -7.00 -0.5 924.50 37.0
Palladium <XPD=> 286.00 0.000 0.0 184.50 55.0
Gold Fix <XAUFIX=> 989.50 -2.25 -0.2 836.50 18.3
Silver Fix <XAGFIX=> 16.07 16.00 1.0 14.76 8.9
Platinum Fix <XPTFIX=> 1270.00 8.00 0.6 1529 -16.9
Palladium Fix<XPDFIX=> 288.00 2.00 0.7 365.0 -21.1
(Additional reporting by Pratima Desai in London and Miho
Yoshikawa in Tokyo; Editing by Marguerita Choy)
