| NEW YORK
NEW YORK Gold prices recovered from early losses late Wednesday, rising from a 6-week low to above $1,200 an ounce, as equity markets rallied, the euro renewed its advance on the dollar and a corrective decline was seen to have run its course.
Gold's technical losses were viewed as therapeutic, shaking out players with weak long positions and dropping prices to levels where fresh demand could emerge after the precious metal's June 21 rise to record highs, analysts said.
Spot gold was at $1,200 an ounce by 2:21 p.m. (1821 GMT), higher than $1,191.50 late in the previous session. Earlier, the low slipped to $1,185.05 an ounce, a level last seen on May 25.
U.S. gold futures for August delivery finished $3.80 higher at $1,198.90 an ounce on the COMEX metals division of the New York Mercantile Exchange. It, too, slid to a 6-1/2-month low in early trade, but later recovered.
"Looking at today, first of all that fact that gold was a bit oversold earlier and we are having a nice solid bounce in equities. I think that's also helping gold," said Peter Buchanan, senior economist at CIBC World Markets in Toronto.
"With daily momentum oscillators posting their first oversold readings since March, we look for renewed signs of basing ahead of resumption of the cyclical bull trend, which is still very much intact," Barclays Capital said in a note.
"Bulls need to regain the 21-day averages at 997/1,231 (in euro and dollar terms, respectively) to regain control."
Buchanan said the positive correlation between equity and gold markets had been resurrected and was supporting gold, adding that the euro's renewed strength on the dollar also helped lift prices in late trade.
U.S. stock markets rallied on Wednesday, rebounding from recent losses, as a bullish earnings forecast for State Street Corp fueled optimism about the upcoming earnings season. .N
The euro rose against the dollar in technical trading after breaking a resistance level that prompted some investors who had bet against the single currency to buy the euro back in effort to prevent losses. <USD/>
Although the usual inverse link between gold and the dollar weakened earlier this year as both benefited from risk aversion, a stronger U.S. currency usually makes dollar-priced metals more expensive for holders of other currencies.
Gold's refound strength was tentative at first, with concerns about the global economic outlook drawing some investors to the yellow metal as a safety play.
Because the safe-haven bet had been built into prices on their way to record highs, it had a lesser effect in Wednesday's rally.
"The general feeling is still of insecurity and, given the drop, people might see (gold) as a bargain, probably more on the speculative side than on the long-term investment side," said Wolfgang Wrzesniok-Rossbach, head of sales at Heraeus.
Gold had fallen some 6 percent from its peak at $1,264.90 an ounce hit in late June.
In India, the world's biggest gold consumer, jewelers bought stocks ahead of religious festivals, and other physical buyers in Asia snapped up bullion after prices fell. <GOL/AS>
Gold earlier slipped to a session low of $1,185.05, its weakest since late May, in earlier trade after China's State Administration of Foreign Exchange said gold will not become a major component of the central bank's portfolio.
However, analysts said, given the size of China's currency reserves, it was not surprising gold would play only a relatively minor role in its portfolio, and that the news was unlikely to detract from central bank interest in gold if prices fell.
"China has $2 trillion in currency reserves, so it is simply not possible for them to invest a major part of this in gold. The gold isn't there," said Commerzbank analyst Daniel Briesemann.
In New York, holdings of the world's largest gold-backed exchange-traded fund, New York's SPDR Gold Trust, dipped further on Tuesday to 1,316.481 tons. <GOL/SPDR>
The SPDR's holdings have fallen 3.955 tons from a record 1,320.436 tons at the end of June, against a rise of 18.429 tons in the same period of the previous month.
Spot silver had rallied to $18.02 an ounce the New York afternoon from $17.78 an ounce late in the previous session. It tied its fate to gold on Wednesday.
Platinum increased to $1,521.50 an ounce from $1,512.50 an ounce late Tuesday, and palladium was higher at $440.0 an ounce than $435.0 previously.
(Additional reporting by Jan Harvey and Pratima Desai in London; Editing by Walter Bagley)