U.S. gold futures for February delivery on the COMEX division of the New York Mercantile Exchange fell $10.30 an ounce to $898.50.

“One of the things that has really helped gold a lot has been the issues in the banking system,” Michael Widmer, an analyst at BNP Paribas, said.

“Looking at the newsflow over the last few days, there was a bit of relief after Barclays’ (BARC) announcement (on its performance),” he said. “That took away some of the immediate buying (of gold).”

On the currency markets, typically a key driver of gold, the euro ceded early gains after hitting a one-week high versus the dollar. However, this failed to pressure gold as it lifted from lows.

Gold typically moves in the opposite direction to the dollar, but its usual relationship with the currency has weakened, with both assets slipping earlier on Tuesday as risk aversion eased.

“A stronger dollar implies panic about the economic outlook but should mean a weaker gold price, in theory,” Daniel Smith, an analyst at Standard Chartered, said.

“The fact that that (relationship) has broken down highlights how worried people are about where they can put their money and who they can trust.”

A Reuters survey of 52 analysts published on Monday showed most expect gold to hold its ground in 2009 despite expected falls in other asset prices, on worries over the global economic outlook and turmoil in the financial markets.

Investment in physically backed products such as exchange-traded funds has been strong in recent weeks as investors seek a safe store of value.

Holdings of New York’s SPDR Gold Trust (GLD) inched up to a new record for the sixth consecutive session on Monday, and have climbed more than 52 tonnes since the beginning of the year.

London-based ETF Securities said its gold-backed ETFs saw inflows of 420,000 ounces last week.

SENSITIVE

However, gold jewelery demand remains weak, dealers say.

“As the demand for jewelery is very sensitive to price movements, demand for gold from India, Turkey and the Middle East, the main centres of the gold jewelery industry, should continue to weaken,” said Commerzbank.

Silver softened in line with gold to $11.98/12.06 an ounce from $12.04 an ounce late on Monday.

The Reuters survey showed most analysts expected silver prices to fare better than those of platinum and palladium, as risk aversion boosts its appeal as a safe haven.

The platinum group metals are also under pressure from gold’s fall. Both platinum and palladium suffered in recent months from fears over falling demand from carmakers, who account for around half of global consumption.

“Demand weakness is likely to weigh on the market in (the first half) and prices are likely to gain traction in line with a pick up in the economic growth towards the end of the year,” Barclays Capital said in a note.

South Africa-focused Aquarius Platinum (AQP) said it expects to report a first-half after-tax loss of $75-$85 million due to weak metals prices. Attributable production of PGMs rose 2.7 percent in December, it added.

Platinum edged down to $944.50/954.50 an ounce from $959.59, while palladium eased to $189/194 an ounce from $190.

LONDON, Jan 27 (Reuters)

Gold rose to its highest in a week on Monday before trimming gains as the dollar strengthened against the euro and oil prices eased, analysts said.

“It is mostly a story about the U.S. dollar, equity markets and inflation at the moment,” analyst Eugen Weinberg at Commerzbank said.

Gold had little incentive to move higher, with oil prices sliding, but firm buying once prices moved towards $800 an ounce created a floor, he said.

Gold rose as high as $845.55 an ounce, its highest level since Jan. 12, before trading at $831.85 an ounce by 1516 GMT, down 1.2 percent from $841.85 in New York late on Friday, as oil prices reversed course and slipped.

Demand from the jewelry industry was seen weak this year, accounting for 70 percent of total demand for gold, and falling inflation would also cap prices, Commerzbank’s Weinberg said.

Gold is traditionally bought as an inflation hedge and with inflationary pressures diminishing interest could fade.

“Whilst we recognize the likelihood of spikes above $1,000 an ounce during 2009, we believe that weaker physical demand limits the potential for a sustained rally in the metal,” Investec Securities said in a report.

The bank forecasts gold prices at $825 an ounce for 2009, falling to $800 in 2010 and $750 for 2011, the report said.

A firmer dollar weighed on gold as dollar-priced commodities tend to fall as the dollar strengthens because it makes them more expensive for holders of other currencies. The euro eased to $1.3139 against the dollar on worries about the health of the euro zone economy after a ratings downgrade on Spain and grim economic forecasts from the European Commission.

OIL WEIGHS

Oil edged lower to around $34 a barrel, having risen 3 percent in the previous session.

Sinking oil prices weigh on gold as the metal typically moves in line with crude, because it is often bought as an inflation hedge, and the direction of the oil market is an indicator of interest in commodities.

But dealers said record bullion holdings in SPDR Gold Shares supported sentiment. Gold holdings in the world’s largest gold exchange-traded fund jumped another 5 tonnes to 795.25 tonnes last week.

Platinum was trading at $946.50/951.50 an ounce, down from $946.50 late on Friday. More than 60 percent of platinum use goes to autocatalysts to clean exhaust fumes.

More bad news for automakers emerged on Friday as manufacturers in Japan, Europe and the United States all warned their businesses continue to struggle and outlooks remained uncertain.

“Given this negative dynamic, support for platinum metals prices from its most important demand sector is foreseeably going to be missing this year,” precious metals group Heraeus said in a report.

“Despite this, we do not expect a complete collapse in the platinum-metals prices. As we have been seeing for some months now, new production is going to slow down as well.”

Silver eased to $11.06/11.14 against $11.21 and palladium traded at $181/186 versus $183 late on Friday.

New York gold futures added $32.5 an ounce to $846.8.

Source: LONDON, Jan 19 (Reuters)