* U.S. inflation up more than expected
* Fed meeting eyed for clues on direction of dollar
* SPDR gold ETF reports inflow on Monday
(Releads, updates prices, adds comment)
By Carole Vaporean and Jan Harvey
NEW YORK/LONDON, Dec 15 (Reuters) - Gold pared early losses
to seesaw for the rest of Tuesday's session as investors
struggled between selling into dollar strength and buying the
inflation potential of an unexpected jump in producer prices
and rallying oil.
U.S. inflation data for November came in higher than
expected, boosting interest in the yellow metal as a hedge
against rising prices.
Oil prices rose for the first day in 10, moving above $70 a
barrel as traders bet that government data will show U.S. crude
inventories fell last week and that colder-than-normal weather
will boost demand for heating oil. []
Earlier, prices fell more than 1 percent as the dollar rose
versus the euro. But inflation fears lifted gold back into
positive territory, with momentum picking up as traders bought
back short positions, or bets prices will fall.
Spot gold <XAU=> slipped to $1,123.70 an ounce by 2:47 p.m.
EST (1947 GMT), from $1124.20 in the late Monday New York
session. Earlier it fell as low as $1,111.20 an ounce.
"The oil market was rallying on speculation that
inventories would be bullish as well as technical factors, and
it pulled gold up with it on a potential inflation basis," said
MF Global precious metals and energy analyst Tom Pawlicki in
Chicago.
Government data showed U.S. producer prices rose more than
forecast in November as energy costs soared. Gold is often seen
as an inflation hedge. []
"Gold found some buying interest after U.S. inflation data
came out higher than expected, playing out its role as an
inflation hedge," said Heraeus trader Alexander Zumpfe.
A rise in the dollar versus the euro kept pressure on gold,
however, as concerns about euro zone banks helped prompt short
covering in the safe-haven dollar. []
While some analysts said they think gold may remain
rangebound until year end, they added that Wednesday's Federal
Reserve policy-setting meeting could send gold prices out of
its recent trading band. No change is expected on U.S. interest
rates, currently near zero, but the Fed's communique could
signal changes down the road.
SKEPTICAL
"A rate rise is still not expected until 2H10, but dollar
sentiment could be gradually improving, and this would slow
down a much expected price recovery in gold in early 2010,"
said VTB Capital analyst Andrey Kryuchenkov in a note.
On the physical side of the market, India's gold traders
picked up bargains in the middle of the wedding season, dealers
said. []
Meanwhile, holdings of the world's largest gold-backed
exchange-traded fund, SPDR Gold Trust <GLD.N>, rose 0.304
tonnes on Monday to 1,116.551 tonnes. []
The SPDR saw its biggest outflow since July last week, amid
a fall in gold prices to four-week lows. This consolidation has
allowed gold to build a base for further gains, analysts say.
"I think the recent retrenchment will simply be a buying
opportunity," said David Wilson, an analyst at Societe
Generale. "A rescaling of $1,200 an ounce isn't beyond the
realms of possibility."
By late New York trade, other precious metals showed silver
<XAG=> bid higher at $17.38 an ounce against $17.36, platinum
<XPT=> added to $1,444.50 an ounce against $1,443.50, and
palladium <XPD=> eased to $362.50 against $364.50.
(Editing by Christian Wiessner)
