* Dollar drop, physical buying supporting gold
* Gold to surpass record in first half of year - GFMS
* SPDR gold ETF reports further outflow on Tuesday
(Recasts, updates comments, closing prices, market activity,
adds NEW YORK dateline/byline)
By Frank Tang and Jan Harvey
NEW YORK/LONDON, Jan 13 (Reuters) - Gold prices rose in
choppy trade on Wednesday as a lower dollar prompted physical
buying and short covering after the previous session's sharp
losses.
"Gold is getting support from dollar movements, as we don't
really have any major catalysts to drive the market," said Rick
Bensignor, chief market strategist at Execution LLC, a New
York-based broker-dealer.
The metal dropped along with most commodities on Tuesday
after China's decision to raise its banks' reserve requirements
sparked fears spending will be curtailed, decreasing bullion's
appeal as a hedge against inflation.
Spot gold <XAU=> was at $1,135.85 an ounce at 2:41 p.m. EST
(1941 GMT), against $1,127.95 late in New York on Tuesday.
Bullion found support around its 50-day moving average at
$1,130, analysts said, after trading as low as $1,119.35
earlier in the session.
U.S. gold futures for February delivery <GCG0> on the COMEX
division of the New York Mercantile Exchange settled up $7.40
to $1,136.80 an ounce.
"This morning and last night, there were quite a few
physical buyers bargain-hunting around in the marketplace, and
we saw some good demand out of India and elsewhere," said
Afshin Nabavi, head of trading at MKS Finance.
"With the dollar back on the slide, there is more
interest," he added. "I wouldn't be surprised if we pushed near
to the high end of the range again, which is around
$1,145-50."
The euro hit a one-month high against the dollar on
Wednesday, while higher-yielding currencies trimmed the
previous day's losses as investors concluded China's surprise
monetary tightening would not derail the world's third largest
economy.
"Gold has held up fairly well, but we could see more
downward pressure, if the dollar rallies in the future," said
Tom Hartmann, analyst at California-based Altavest.
Strength in the U.S. unit curbs gold's appeal as an
alternative asset and makes dollar-priced commodities more
expensive for holders of other currencies.
Gold prices will likely eclipse last year's record-high
levels in the first half of the year as stronger investment
demand offsets the impact of relatively weak jewelry
fabrication and lower de-hedging activity, precious metals
research firm GFMS said in a report. []
OIL BELOW $80
Among other commodities, oil prices fell to their lowest
level this year after a U.S. inventory report showed rising
U.S. distillate stocks despite severe winter weather. []
Holdings of the world's largest gold-backed exchange-traded
fund, the SPDR Gold Trust <GLD>, dipped 3.7 tonnes on Tuesday,
bringing their decline this year to nearly 18 tonnes, or 1.6
percent. []
Silver <XAG=> tracked gold higher to $18.54 an ounce from
$18.24. Platinum <XPT=> was at $1,572.50 an ounce against
$1,568.50, and palladium <XPD=> was at $421 against $421.50.
U.S. platinum and palladium exchange-traded funds launched
last Friday were met with buying interest, with about 170,000
ounces of metals added in the first two trading sessions, a
spokesman for ETF Securities, which operates the funds, said.
"Continued strong ETF investment in 2010 (potentially
amplified by the U.S. ETFs) would push the platinum and
palladium markets into deficit," RBS Global Banking & Markets
said in a note.
(Editing by Walter Bagley)
