Spot gold was bid at $925.20 by 1520 GMT after hitting an intra-day low of $922.60, the lowest since June 24. Earlier it hit a high of $944.70.

The precious metal reversed earlier gains when the dollar, which has been under pressure, gained against a basket of currencies after U.S. consumer confidence data.

“Obviously, in these days where everything is linked together, from crude prices to the price of gold, any change to people’s view of the economy and inflation expectations will cause a reaction,” said Ole Hansen, an analyst at Standard Bank.

Adding to the bearish signals for gold prices, crude oil dropped nearly 3 percent.

While investing in gold is usually seen as a hedge against risk, a strengthening dollar makes it relatively more expensive for holders of foreign currencies, weakening its appeal.

“Gold is following the dollar,” said senior trader Michael Kempinski at Commerzbank. “Euro/dollar falling below $1.41 triggered some profit-taking in gold,” he said.

Earlier in the London session, gold slipped after the European Central Bank said gold and gold receivables held by euro zone central banks fell by 96 million euros ($136 million) in the week ending June 26.

INFLATION IN FOCUS?

Matthew Turner, an analyst at VM Group, said gold investors seemed to be focusing more intently on long-term inflation expectations than recession fears, which would strengthen the link between crude and bullion prices.

“But there are no immediate signs of inflation anywhere for now, so investors are looking to the long term, and of course when inflation does start to go up, the price of gold will be rising well ahead of it,” he said.

U.S. gold futures for August delivery dropped by 1.5 percent to $926.90 per ounce on the day.

On the investment front, the world’s largest gold-backed exchange-traded fund, the SPDR Gold Trust, said its holdings remained at 1,125.74 tonnes as of June 29, unchanged since June 25.

In other precious metals, spot silver was lower at $13.52 against $13.84 on Monday, platinum was unchanged at $247.00.

LONDON, June 30 (Reuters)

Spot gold stood at $923.40 per ounce by 1132 GMT, having earlier hit a six-week low at $912.90 in Asian trade. That compared with $921.90 quoted late in New York on Monday.

Traders said that bullion prices, having hit three-month highs recently just shy of $1,000 an ounce, were ripe for the falls seen over the past few days with speculators looking to clear out stale long positions.

But the metal’s traditional role as a hedge against jittery sentiment in other asset classes was also kicking in as investors, spooked by doubts about growth prospects for leading economies, shift into risk-averse gear.

Concerns about reserve diversification away from U.S. assets caused the dollar to turn lower against the euro ahead of the Federal Reserve’s monthly meeting, after Moody’s said one risk to the U.S.’ triple-A rating is if the dollar is challenged as the main reserve currency.

“Gold is tracking the dollar closely today, but we’ll have to wait for the FOMC statement tomorrow night for the market to choose to move clearly in one direction or another,” said David Thurtell, analyst at Citigroup.

A weaker dollar makes metals and other commodities priced in the U.S. unit cheaper for non-U.S. investors.

Crude oil prices rallied to $68 a barrel on Tuesday ahead of data expected to show a fall in U.S. oil stocks, reversing losses and renewing the appeal of gold as a potential inflation hedge.

“The key driver here is basically crude oil, the dollar and inflation expectations, and I think gold at the moment is pricing in a huge amount of inflation expectations,” said Jesper Dannesboe, an analyst at Societe Generale.

INVESTOR CAUTION

U.S. gold futures for August delivery rose nearly half a percent to $924.80 per ounce on Monday on the COMEX division of the New York Mercantile Exchange.

Overall investor caution was stirred by the World Bank on Monday, which said prospects for the global economy remained “unusually uncertain” as it cut 2009 growth forecasts for most economies.

“Investor risk appetite has lost forward momentum as the market begins to question the extent to which the green shoots of the financial risk rally have roots in the real economy,” Tullet Prebon said in a note to clients.

“There is nothing like a 3.1 percent drop in the S&P on a day to get the bears out of the woods…, but the joke aside it is beginning to look like those who hoped for a V-shaped recovery will find that we are looking at the tail end of it.”

The world’s largest gold-backed exchange-traded fund, the SPDR Gold Trust , said its holdings fell to 1,131.24 tonnes as of June 22, down 0.91 tonnes from the previous business day.

It was the first change in the holdings since June 5. The holdings hit a record 1,134.03 tonnes earlier in the month.

In other metals, silver firmed slightly to $13.83 , up from $13.72 quoted late in New York on Monday. Platinumrose slightly to $1,167.50 from $1,159.50, while palladium firmed to $234.50 from $232.00.

LONDON, June 23 (Reuters)

The closure of the U.S. markets for the Presidents Day holiday is likely to keep traders on the sidelines this session.

Spot gold was little changed at $940.20/942.20 an ounce at 1233 GMT from $939.40 late in New York late on Friday.

Bullion prices rose nearly $30 an ounce last week as concern over the economic outlook and turmoil in the financial sector prompted investors to buy the metal as a haven from risk.

Wolfgang Wrzesniok-Rossbach, head of sales at precious metals group Heraeus, said however that with jewellery demand soft, gold was likely to consolidate before its next leg higher.

“The trend for the next hours and days is probably a little lower before we make a new attempt higher,” he said. “Between $935 and $930, there is danger that the metal will break (its) recent uptrend, and then we might head a little lower.”

But turmoil in the financial markets and economic worries are still supporting demand for gold as a safe store of value.

Equities fell on Monday after a lack of concrete action following a G7 meeting this weekend and as data showed Japan is sinking deeper into recession. Japan reported its worst quarterly contraction in 35 years on Monday.

Fear-driven demand for investment products is helping balance a drop-off in jewellery buying in traditional gold markets such as China, India and the Middle East.

The world’s largest gold-backed ETF, New York’s SPDR Gold Trust (GLD) , said its holdings rose more than 15 tonnes to a record 985.86 tonnes on Friday. The trust’s gold holdings are up more than 205 tonnes or 26 percent so far this year.

But India’s gold demand was slack on Monday as high prices put traders off purchases. “Gold demand is very sluggish, and everybody is waiting for a dip to $900-$920,” said a dealer at a state-run bank in Mumbai.

The head of the Bombay Bullion Association said on Friday that there have been no gold imports into India so far in February.

Scrap supply from India and China is rising, however, as the climb in spot prices prompts existing gold holders to cash in gains.

DIRECTION

Gold took little direction from its usual main external drivers, the dollar and oil prices.

The dollar gained ground versus the euro as grim Japanese data intensified global recession fears and encouraged buying of safer assets.

Gold typically trades in the opposite direction to the U.S. currency, as it is often bought as a hedge against dollar weakness. However, both are currently benefiting from rising risk aversion.

Oil prices were steady just above $37 a barrel, pausing after Friday’s 10 percent rally, as investors awaited further direction from the signing of a U.S. stimulus package later this week.

Among other precious metals, silver also took support from strong investment.

Holdings of the biggest silver ETF, the IShares Silver Trust (SLV) , were at a record 7,607 tonnes on Friday. Spot silver edged down to $13.53/13.61 an ounce from $13.62.

Platinum and palladium remain under considerable pressure from the sluggish outlook for the car industry, a major user of the metals as a component in catalytic converters.

President Barack Obama has decided to launch a government task force for restructuring the struggling U.S. auto industry, a senior administration official said on Sunday.

Platinum edged up to $1,065/1,070 an ounce from $1,059.50, while palladium was at $215/220 an ounce from $214.

London-based ETF Securities said holdings of its palladium-backed exchange-traded commodity rose 30 percent last week as a recovery in platinum and palladium prices cheered investors.

Reuters Monday 2/16/09