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PRECIOUS-Gold steadies; hemmed in by dollar strength

LONDON, 1st October 2009 (Reuters) By Veronica Brown

Gold was steady on Thursday, with dollar strength sapping upward momentum, but prices held above key support at $1,000, with investors sidelined ahead of U.S. data including non-farm payrolls on Friday.

Spot gold stood at $1,006.90 per ounce at 1300 GMT, compared with $1,006.70 late in New York on Wednesday.

U.S. gold futures for December delivery fell $0.90 to $1,008.50, after rising 1.5 percent on Wednesday.

In other precious metals, silver rose to $16.64 from $16.59 , while platinum fell to $1,290.00 from $1,295.50 and palladium eased to $291.50 from $293.50.

Analysts said the market still seemed to be showing some resilience despite Thursday's dollar strength -- staying above key support at $1,000 after recent sharp losses towards the $984 region.

"Most people have been expecting some kind of correction as that's what has happened when the market has gone over $1,000. We're now left wondering whether the recent drop was it," said Matthew Turner, analyst at VM Group in London.

With currency movements seen as the main driver, major direction should come in the wake of dollar reaction to economic data including Friday's key non-farm payrolls report.

The dollar held onto earlier gains against a basket of major currencies after weekly figures showed the number of U.S. workers filing claims for jobless benefits rose last week.

Dollar strength tends to make dollar-priced gold less attractive to non-U.S. investors. The dollar index was last up 0.4 percent.

UNEASE?

Overall dollar weakness, concerns about potential inflation and technical momentum saw gold prices rise some 8.7 percent in the three months to September, producing its strongest performance since the first quarter of 2008.

The latest rally also took prices to within a few dollars of the March 2008 record high at $1,030.80.

HSBC metals analyst James Steel said in a note to clients that the market's ability to stay at or near $1,000 was impressive.

"We believe the deterioration of the USD combined with a gradual increase in investor risk appetite, is propelling gold prices higher. Gold appears poised to challenge all-time highs of USD1,030/oz," Steel said.

But while investors have been happy to go with current momentum, some unease remains over the market's fundamental picture and the extent of speculative long positioning.

"Macro-wise I can't see any significant reasons supporting gold. The data seems to still suggest that we're in quite a significant deflationary environment," said David Wilson, metals analyst at SocGen in London.

On investment, the world's largest gold-backed exchange-traded fund, the SPDR Gold Trust, said its holdings rose 1.22 tonnes to 1,095.327 tonnes on Wednesday.

It was the first rise since Sept. 21, when the holdings rose by 15.256 tonnes to top 1,100 tonnes on a fall in gold prices to around $995 per ounce.

Further out, banks are remaining positive on gold's ability to move higher. Deutsche Bank said gold would move above $1,100 an ounce during 2010, above the record high of $1,030.80 an ounce hit in March 2008.

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