* Risk aversion sparks dip in equities ahead of earnings
* Physical demand for gold ebbs as prices recover
(Releads, adds comment, updates prices)
By Jan Harvey
LONDON, April 8 (Reuters) - Gold was firmer on Wednesday,
but gave up some of its earlier gains as equity markets
recovered in Europe and U.S. stock futures pared losses ahead of
the open.
Spot gold <XAU=> was quoted at $885.10/886.60 an ounce at
1246 GMT from $880.05 late in New York on Wednesday. Earlier it
touched a high of $889.00 an ounce as equities weakened after
disappointing results from Alcoa <AA.N>.
"Gold has been largely taking cues from stock market moves
across the globe, rather than its true fundamentals," said
Pradeep Unni, senior analyst at Richcomm Global Services.
"Any extended slide in stock markets may push the metal
higher and probably may inch up higher above the $900. This in
addition to the investment demand and seasonal physical demand
(which) might support the metal in the near term."
Prices eased 3 percent last week as stock markets moved
higher after the G20 leaders' summit in London. However, risk
aversion is starting to return to the market, analysts said,
boosting the appeal of nominally safer assets such as gold.
"There is still a lot of systemic risk in the financial
system," said Standard Bank analyst Walter de Wet. "That is not
going to be solved quickly with the G20 meeting."
"People are seeing this (price dip) as an opportunity to
enter the market."
Gold rose in early trade as world stocks slipped for a third
session, while perceived safer assets such as bonds and the yen
gained. Firmer stock markets had pressured gold, as investors
sold the precious metal to buy back into equities. []
However, a recovery in the European stock markets and
indications for a higher opening on Wall Street knocked the
precious metal from highs.
On the foreign exchange markets, the dollar firmed against
the higher yielding euro as traders bought the U.S. currency as
as an alternative to riskier assets. []
A stronger dollar typically weighs on gold, but the two
assets' usual relationship has broken down in recent months as
both respond to risk aversion.
SCRAP
Analysts say falling prices have also curbed the amount of
scrap gold returning to the market in the last few days. A flood
of scrap supply early in 2009 was a key factor pressuring gold
down from its high above $1,000 an ounce.
According to metals consultancy GFMS, which released its
2009 Gold Report on Tuesday, scrap supply outweighed jewellery
offtake in the first quarter of this year.
Gold buying in the world's biggest jewellery market, India,
has eased after firming last week as prices slipped, while
European demand is also ebbing after a brief recovery.
"What we saw earlier in the week as far as physical demand
was concerned below the $880 level is a little bit quieter this
morning," said MKS Finance' head of trading Afshin Nabavi.
"There is not as much enthusiasm."
"But by the same token, there is not really any major
selling as such," he added.
Among other precious metals, spot platinum <XPT=> was at
$1,176.50/1,186.50 an ounce from $1,162. The metal recovered in
the first quarter after tumbling by two-thirds last year from
the all-time of $2,290 an ounce it reached in March last year.
Investors see the metal as good value now prices have
dropped, analysts say, while there are hopes that car demand may
recover if the economic downturn bottoms out. The metal is
chiefly used as a component in catalytic converters.
Spot silver <XAG=> firmed to $12.39/12.45 an ounce from
$12.22, while spot palladium <XPD=> was at $228.50/232.50 an
ounce from $222.
(Reporting by Jan Harvey; Editing by James Jukwey)
