Gold rebounds with oil, crops; still near one-year low

An employee picks up a gold bar at the Austrian Gold and Silver Separating Plant 'Oegussa' in Vienna August 26, 2011.

NEW YORK (Reuters) - Gold ended nearly flat on Wednesday after the metal pared early gains on signs that U.S. economic recovery might need to weaken further for Federal Reserve policymakers to unanimously agree on more stimulus.

Bullion trimmed gains as the dollar rose after the minutes of the Fed's June meeting showed that a few officials on the policy-setting Federal Open Market Committee thought recent softness in the economy was sufficient to justify bolder action. ID:nL2E8IBAG8]

"We are in an environment where short-term dollar gains will lead to pullback in gold," said Sean McGillivray, head of asset allocation at Great Pacific Wealth Management.

"If we continue to see contagion around the world, it's really difficult for any dollar-denominated asset even inflationary hedge such as gold to pick up steam," he said.

The precious metal currently hovered near its one-year low, and analysts said more losses could be in store on technical weakness.

Spot gold was up 0.1 percent on the day at $1,568.64 an ounce by 2:39 p.m. EDT (1839 GMT).

U.S. COMEX August gold futures settled down $4.10 at $1,575.70 an ounce, narrowing the difference between the futures price and spot gold. Trading volume was about 20 percent below its 30-day average, preliminary Reuters data showed.

The metal had dropped 3 percent in the last four sessions on signs of global economic slowdown and frustrations over a lack of more monetary easing by the U.S. central bank.

The report suggested a majority of the FOMC voting members was not yet on board to call for more easing - at least not before last week's employment report, which showed a paltry 80,000 new jobs were created in June.

"It's clear that economic environment has deteriorated after the FOMC. It's very clear that the Fed would like to give us stimulus, and that should be supportive to gold," said Axel Merk, chief investment officer at Merk Funds, which manages $600 million in currency mutual-funds assets.

TECHNICAL WEAKNESS

Gold is just $40 above its one-year lows near $1,530-1,540 an ounce, and analysts said a failure to hold that support level could lead to a steep price correction.

"The long-term, upward-sloping trend line in gold's favor is in jeopardy of being broken," said Dennis Gartman, a veteran trader and publisher of the daily Gartman Letter.

Gartman said that the presence of lower lows and lower highs on gold charts, and bullion's 200-day moving average trending lower since mid-May suggested more technical selling to come.

Meanwhile, lackluster investment demand in gold failed to underpin prices.

By Tuesday's close, holdings of gold in the world's largest exchange-traded products (ETPs) fell to the lowest level since mid-June, down nearly a quarter of a million ounces in two trading days, the largest two-day drop since May.

The bulk of the outflows are coming from the SPDR Gold Trust, the world's largest gold ETP, which has shed 333,500 ounces in the last three weeks.

In other precious metals, silver rose by 0.6 percent on the day to $26.97 an ounce.

Among platinum group metals, platinum eased 15 cents on the day to $1,417.18 an ounce, while palladium rose 0.6 percent to $574.53.

(Additional reporting by Amanda Cooper in London; Editing by David Gregorio and Marguerita Choy)