* Gold to benefit from currency volatility, eyes G20
* Dollar firm, heads for first weekly gain in six weeks
* Indian gold demand rises as prices slips from highs
* Coming up: G20 meeting in South Korea
(Adds graphic, CFTC data, updates prices to market close)
By Frank Tang
NEW YORK, Oct 22 (Reuters) - Gold steadied on Friday after
its first weekly decline in nearly 3 months, with bullion
investors keeping an eye on any statements from the G20
meeting.
Any currency reaction to the G20 meeting in South Korea
this weekend could provide fresh impetus to the gold market.
Analysts, however, said it is unlikely for members to reach
a deal on a U.S.-led initiative for a commitment from emerging
countries to allow their currencies to rise. []
"I don't think there was an expectation that they will come
up with a grand solution because everybody does have a
different interest," said Axel Merk, portfolio manager of Palo
Alto, California-based Merk Mutual Funds.
"It's just the very beginning of a currency war. It's going
to take a while to brew over. I have no doubt gold will be the
beneficiary in the long run," he said.
Gold was more than 3 percent lower this week, after China's
surprised rate hike sent the dollar up 0.7 percent since
Monday. The inverse correlation between gold and the dollar has
been the closest in a month, Reuters data showed.
Spot gold <XAU=> was up 0.3 percent at $1,327.65 an ounce
at (3:25 p.m. EDT (1925 GMT), having earlier fallen to a 2-1/2
low at $1,315.09. U.S. gold futures for December delivery
<GCZ0> settled down 50 cents at $1,325.10.
A weekly report by the U.S. Commodity Futures Trading
Commission showed managed funds cut the net long position in
the COMEX futures markets by about 7 percent this week, as gold
prices dropped 3.3 percent, roughly matched its last
significant weekly decline in early July.
The dollar was on track to snap a five-week losing streak
against major currencies as traders took profits ahead of
possible news from the G20 meeting and the euro repeatedly ran
into technical resistance above $1.40.
The correlation between the metal and the dollar has
tightened to a negative 0.77, near its closest link this year,
Reuters data showed.
(Graphic: http://link.reuters.com/hab89p)
Standard Chartered analyst Daniel Smith said the dollar has
been a very important driver and gold could see more weakness
in the short term.
"I think the price has run up too fast and we're just going
through a period of consolidation now," Smith said.
Gold's 3.3 percent drop this week roughly matched its last
significant weekly decline in early July.
Spot prices rallied sharply to a record $1,387.10 an ounce
late last week but have struggled to maintain traction as the
dollar rebounded from lows amid fears expected U.S. monetary
easing had been too heavily priced into the market.
Although significant action is not widely anticipated,
traders are awaiting a forthcoming Fed policy meeting that
could result in further quantitative easing. []
Good physical demand from traditional bullion-buying
centers such as India is strengthening as prices descend.
Dealers in India reported they were continuing to stock up
for forthcoming festivals, including the Hindu festival of
Diwali, a major gold-buying events, as prices corrected this
week. []
SPDR GOLD DOWN FOR FIFTH SESSION
The world's largest gold-backed exchange-traded fund, New
York's SPDR Gold Trust <GLD>, saw a further drop in its
holdings on Thursday, however. Gold held by the fund dropped
0.9 tonnes, its 11th session of outflows in 15. []
Despite a five-day losing streak, SPDR Gold's bullion
holdings were only 6 tonnes below its recent peak, a relatively
small decline for the fund.
Among other precious metals, silver <XAG=> was 0.4 percent
higher at $23.20 an ounce, its biggest weekly loss since early
July as it followed gold prices lower.
"As usual silver has been underperforming during the
correction just like it has been outperforming during the
recent rally," said Saxo Bank senior manager Ole Hansen in a
note on Friday.
The ratio of gold to silver -- the number of ounces of
silver needed to buy an ounce of gold -- rebounded from its
lowest in more than two years to reach a 10-day high at just
over 57 to 1 on Friday as silver underperformed gold in a
falling market.
Elsewhere platinum <XPT=> edged up 0.4 percent at $1,672.92
an ounce, while palladium <XPD=> gained 1.1 percent to
$588.05.
Prices at 3:29 p.m. EDT (1929 GMT)
LAST/ NET PCT YTD
CLOSE CHG CHG CHG
US gold <GCZ0> 1325.10 -0.50 0.0% 20.9%
US silver <SIZ0> 23.118 -0.021 0.0% 37.2%
US platinum <PLF1> 1675.10 1.70 0.1% 13.9%
US palladium <PAZ0> 591.10 4.80 0.8% 44.6%
Gold <XAU=> 1327.15 3.55 0.3% 21.1%
Silver <XAG=> 23.21 0.03 0.1% 37.8%
Platinum <XPT=> 1672.92 6.97 0.4% 14.2%
Palladium <XPD=> 588.05 6.52 1.1% 45.0%
Gold Fix <XAUFIX=> 1322.50 3.50 0.3% 19.8%
Silver Fix <XAGFIX=> 23.05 -85.00 -3.6% 35.7%
Platinum Fix <XPTFIX=> 1673.00 12.00 0.7% 14.1%
Palladium Fix <XPDFIX=> 586.00 3.00 0.5% 45.8%
(Additional reporting by Jan Harvey and Elizabeth Fullerton;
editing by Sofina Mirza-Reid)
