* Gold slips to two-week low but quickly bounces
* Dollar at highest since early Nov vs euro, currency basket
* SPDR gold ETF saw outflow on Friday
(Updates prices, adds comment, graphic)
By Jan Harvey
LONDON, Dec 7 (Reuters) - Gold prices fell 2 percent to
session lows in Europe on Monday on selling prompted by the
dollar's rise to a five-week high versus the euro following
above-consensus jobs data in the previous session.
Spot gold <XAU=> was bid at $1,140.90 an ounce at 1210 GMT,
against $1,159.55 late in New York on Friday. Earlier it hit a
two-week low of $1,135.80 an ounce.
Friday's much better than expected non-farm payrolls data
prompted speculation the U.S. Federal Reserve may lift interest
rates from their current historic lows sooner rather than later,
which could help the dollar and cut support for gold. []
However, the metal's underlying appeal as a hedge against
potential inflation and ongoing instability in the financial
markets mean prices are likely to find support around these
levels, analysts said.
"The first line of support is around the $1,135 area. So far
we have held that level," said Tom Kendall, precious metals
strategist at Mitsubishi Corp.
He said while the jobs data and the dollar's subsequent
bounce were pressuring gold, he did not expect to see a
significant change to expectations for U.S. monetary policy.
"I don't think a couple of data points are really enough to
make people readjust their expectations of what the U.S.
Treasury and the Federal Reserve are going to be doing in the
next six to nine months," he said.
"The market was generally expecting a move on rates from Q3
2010 onwards, and I think once this settles down that is still
going to be the case."
U.S. gold futures for February delivery <GCG0> on the COMEX
division of the New York Mercantile Exchange fell $27.10 to
$1,142.30 an ounce.
DOLLAR SLIDES
The dollar hit a five-week high against the euro <EUR=> and
a currency basket <.DXY> on Monday. The U.S. currency has been
depressed for much of the year on the view that U.S. rates will
stay low while those elsewhere rise.
Analysts say gold has not corrected as deeply as might have
been expected, given its sharp rise in November. "Gold's failure
to collapse more than this may be seen as a sign of support in
the market," said Fairfax analyst John Meyer in a note.
Gold usually has a close inverse relationship to the dollar,
with strength in the unit cutting the metal's appeal as an
alternative asset. While the correlation weakened earlier this
year as risk aversion lifted both assets, it has been restored.
For graphic showing gold's correlation with the euro-dollar,
click: http://graphics.thomsonreuters.com/129/GLD_EURCR1209.gif.
Other commodities also fell, with oil prices easing 1
percent to below $75 a barrel, tracking weaker equities.
European shares slipped with shares of UK lenders pressured by
the possibility of a tax on bankers' bonuses. [] []
Gold tends to track crude prices, as the metal can be bought
as a hedge against oil-led inflation. For a graphic on gold's
relationship with inflation expectations, click on:
http://graphics.thomsonreuters.com/129/GLD_TPSS1209.gif
On the investment side, the world's largest gold-backed
exchange-traded fund, the SPDR Gold Trust, said its holdings
eased 1.524 tonnes to 1,129.966 tonnes on Friday. []
Among other precious metals, silver <XAG=> was at $18.03 an
ounce against $18.43, while platinum <XPT=> was at $1,423.50
versus $1,440.50 and palladium <XPD=> at $362.50 versus $371.
ETF Securities' said holdings of its palladium-backed
exchange-traded product <PHPD.L> rose 1.25 percent to a record
640,483 ounces on Friday.
(Reporting by Jan Harvey; Editing by Keiron Henderson)
