* Gold eyes 18-month high as the dollar weakens
* COMEX long positions, lack of physical buying could cap
* Fed in focus for impact on the dollar
(Adds quotes, updates prices, adds background)
By Humeyra Pamuk
LONDON, Sept 22 (Reuters) - Gold climbed 1.5 percent to
trade within striking distance of recent 18-month highs on
Tuesday, supported by a broadly weaker dollar, as investors
focused on the U.S. Federal Reserve meeting on interest rates.
Spot gold <XAU=> rose as high as $1,019.50 an ounce and was
at $1,015.85 by 1506 GMT, versus $1,002.55 an ounce late in New
York on Monday, when it fell to $995.50, its lowest in almost a
week.
Dealers and analysts said that while the market had picked
up well, there was some hesitance to take full advantage of
dollar weakness until the outcome of the Fed meeting on
Wednesday. []
Most are looking for signals that the central bank will keep
its ultra-loose monetary policy well into 2010.
"The market is looking for any sense of a change in speed or
direction from the (Fed). If we come past that press conference
tomorrow and the market decides its business as usual...it's
another green light to sell the dollar and another up-leg for
gold," said Mitsubishi analyst Tom Kendall.
Further dollar weakness after the meeting could trigger a
rally which could send bullion above its 18-month high of
$1,023.85 an ounce hit last week, and to within sight of the
$1,030.80 an ounce record high struck in March 2008.
But worries about liquidation of record long positioning on
the New York COMEX futures market threatens the sustainability
of prices, once a record high is reached.
"I'm bullish but I think we need a more substantial
correction than the one we saw yesterday," said Afshin Nabavi,
head of trading at MKS Finance.
The euro rose above $1.48 for the first time in a year as
dealers took advantage of deteriorating sentiment toward the
dollar to target options barriers at that level.[]
A weaker dollar makes dollar-priced gold more attractive for
non-U.S. investors.
SPEC WEIGHT
Noncommercial net long positions in gold futures in New York
at an all-time high of 235,647 lots for the week ended Sept.15
worried investors as it could spark a long liquidation.
[]
"We need to see the previous record high broken to let some
steam out of this market. As long as we fail to get through that
level there's always the risk that we could see long liquidation
on disappointment," Hansen at Saxo Bank said.
U.S. gold futures for December delivery <GCZ9> rose $11.70
an ounce to $1,016.60 on the COMEX division of the New York
Mercantile Exchange.
Lower prices could attract buying from main consumer India,
where weddings traditionally take place during the current
festive season, which peaks in October with Diwali, the Hindu
festival of lights.
"We need the physical market to come and obviously at these
levels that market is very hesitant," Nabavi at MKS Finance
said.
The world's largest gold-backed exchange-traded fund, the
SPDR Gold Trust <GLD>, said its holdings stood at 1,101.735
tonnes as of Sept 21, up from 1,086.479 tonnes the previous day.
In other metals, silver rose to $17.18 an ounce compared
with Monday's $16.80, while palladium <XPD=> was at $301.00 an
ounce versus $294.50 an ounce. It hit $304 an ounce last week,
its highest since end-August 2008.
Platinum <XPT=> was at $1,332.50 an ounce compared with
$1,315.50 an ounce.
(Additional reporting by Veronica Brown)
(Reporting by Humeyra Pamuk, Editing by Pratima Desai)
