Gold declined on Wednesday, extending the previous session’s 3 percent losses, after Federal Reserve Chairman Ben Bernanke’s reassurances on the outlook for inflation and the economy cooled risk aversion.

A recovery in equities indicates a pick-up in appetite for risk and may divert investment from gold, analysts said.

Spot gold slipped to $955.90/957.90 an ounce at 0941 GMT from $862.45 late in New York on Tuesday.

“The gold price is a fear indicator,” said Commerzbank analyst Eugen Weinberg. “As the chance of us seeing problems on the (equity) markets is lower than it was yesterday, some risk aversion has been taken out of the market.”

Holdings of the world’s largest gold exchange-traded fund, the SPDR Gold Trust, were also unchanged for a fourth consecutive session on Tuesday, fuelling fears burgeoning demand for gold to back ETFs may have stalled.

“There is no demand for gold other than investment demand into ETFs and into small bars and coins,” said Weinberg.

Bernanke said on Tuesday major banks should weather the recession without being nationalized. His comments that he believed the Fed could head off rising inflation was also seen as negative for gold

“If, as Chairman Bernanke believes, consumer price growth is likely to remain tepid for the next several years, then low prices are likely to present a major headwind to further gold advances,” said HSBC analyst James Steel.

Equities bounced overnight in Asia as Bernanke’s reassuring comments sparked a rebound in financial stocks. European shares tracked gains in Asia and the United States, snapping a three-day losing streak.

The dollar weakened against the euro on Wednesday, but firmed to a three-month high versus the yen. Gold typically trends in the opposite direction to the U.S. currency, to which it is often bought as an alternative asset.

However, they have moved in line in recent months as both have benefited from a flight to safety among investors.

The other main external driver of gold, oil, was steady, having shed much of the last session’s 4 percent gains.

PICK-UP

Gold buying in India has picked up as prices have retreated from the record highs they hit last week. A further dip below 15,000 rupees per 10 grams may rekindle buying interest, dealers said.

“We are getting calls for the first time after gold dipped below $1,000,” said a dealer with a state-run bank in Mumbai.

India’s buying of the precious metal tailed off as gold soared, leading some to speculate that a depression in jewellery demand could prove a major drag on prices, despite the strength of investment buying.

On the supply side, analysts say the recent increase in the gold price is likely only to slow the decline in mine production. Figures released on Tuesday showed output in South Africa fell 13.6 percent in 2008 to its lowest in 86 years.

“Long-term trends show that production in the United States, Canada, Australia and South Africa is in decline,” said Johannesburg-based Credit Suisse analyst David Davis.

“The expected increase in production from South America, Indonesia and China is unlikely to offset the decline in production from (these countries) in the long term.”

Traders will be eyeing January existing home sales data due out in the United States at 1500 GMT for clues as to the health of the economy, and further testimony from Bernanke later in the session before the House Financial Services Committee.

Among other precious metals, spot silver eased to $13.71/13.78 an ounce from $13.74. Holdings of the largest silver-backed ETF, the iShares Silver Trust, were also static on Tuesday, albeit at record levels.

Platinum was steady at $1,036/1,041 an ounce from $1,040.50. Ridge Mining PLC said its Blue Ridge Platinum unit has closed out all its hedging arrangements.

Palladium slid to $195.50/198.50 an ounce from $198.

LONDON, Feb 25 (Reuters)