* SPDR gold ETF records fresh outflow; holdings at 7-wk low
* Equities, euro firm as risk appetite returns
* Reserve Bank of India lifts rates more than expected
(Updates prices)
By Jan Harvey
LONDON, July 27 (Reuters) - Gold held below $1,185 an ounce
in Europe on Tuesday, supported by physical demand after this
month's slip and a softer dollar, but with a dip in holdings of
the largest gold exchange-traded fund undermining sentiment.
Spot gold <XAU=> was bid at $1,184.35 an ounce at 1109 GMT,
against $1,183.75 late in New York on Monday. U.S. gold futures
for August delivery <GCQ0> firmed 90 cents to $1,184.00.
"There seems to be a pause in the gold market, with
investors unclear about the immediate trend," said Pradeep Unni,
senior analyst at Richcomm Global Services.
"Investment demand has taken a back seat and physical buying
is only expected to emerge by the end of this month.
"There is overall weakness in place and it's likely that
gold would be dragged slowly and steadily to $1,170, but
weakness beyond $1,165 isn't envisaged," he added.
A decline in holdings of the world's biggest gold ETF, New
York's SPDR Gold Trust <GLD>, suggests the investment demand
that drove prices to a record $1,264.90 an ounce earlier in the
year is waning, analysts said.
The 0.3-tonne drop in the SPDR's bullion holdings on Monday
brought them to their lowest since June 9. The trust has
recorded an outflow of 18.7 tonnes of gold so far this month.
[]
"Given current market momentum, a net redemption ETF trend
could well follow through in August," said UBS analyst Edel
Tully in a note. "January holds the title of the worst monthly
ETF performance in 2010 with 722,200 ounces of net selling
action, February follows (with a drop of) 79,600 ounces.
"If gold retains its current dynamics, then it's quite
possible that investors will return to early first-quarter
activity," she added.
EURO FIRM
Elsewhere the euro held near a two-month peak against the
dollar as a continued improvement in risk appetite dented
interest in the U.S. unit. European shares also rose, extending
gains to a five-week high. [] []
Earlier in the year, strength in assets seen as higher risk
like stocks and the euro tended to coincide with lower gold
prices, as the metal was largely being bought by investors
seeking refuge from turmoil in other markets.
As the financial markets have calmed in recent weeks, the
metal has resumed a more normal trading pattern, moving in line
with other commodities and against the dollar, analysts said.
"Gold and commodities in general remain a high-beta asset,"
said Standard Bank analyst Walter de Wet, referring to
commodities' high volatility. "If risk appetite is high, these
things benefit."
Meanwhile, India's central bank raised interest rates more
strongly than expected, in the face of inflation that has held
above 10 percent for the past five months. []
While higher interest rates lift the opportunity cost of
holding non-interest-bearing gold, higher inflation could boost
the metal's appeal as a hedge against rising prices.
"It depends how the Indians will see the situation --
whether they will stick to gold as an inflation hedge or prefer
to sell gold and put their rupees in a bank," said Commerzbank
analyst Eugen Weinberg.
In other news, the London Metal Exchange said on Tuesday it
hopes to go live with cleared over-the-counter contracts on
November 8. []
Among other precious metals, silver <XAG=> was at $18.17 an
ounce against $18.14, platinum <XPT=> was at $1,554.05 an ounce
versus $1,548.25 and palladium <XPD=> at $473.45 versus $471.70.
(Editing by Alison Birrane)
