Gold firms as 2 pct slide tempts price-sensitive buyers

By Jan Harvey

LONDON (Reuters) - Gold firmed on Tuesday as demand for physical metal picked up after the previous day's 2 percent slide, though prices remain under pressure from gains in the dollar and stocks.

Physical buying gathered pace in Europe and major consumer China on Tuesday, traders said, supporting prices after dollar strength had knocked them lower.

Spot gold was up 0.5 percent at $1,156.10 an ounce at 1439 GMT, while U.S. gold futures for December delivery were down $4.50 an ounce at $1,155.30.

"Retail demand is very strong since prices came off," Heraeus trader Alexander Zumpfe said. "Overall, physical demand is lending some support - Asia is also showing steady buying interest."

The metal slid to a 4-1/2-year low at $1,131.85 an ounce last week, and is currently down 4.3 percent this year.

A 0.1 percent rise in the dollar index is putting pressure on gold. A firmer dollar makes assets priced in the U.S. unit more expensive for other currency holders.

Appetite for other assets is also improving. European stocks rose after Wall Street posted a fourth straight record close and Tokyo's Nikkei hit a seven-year high.

Gold's inability to retain Friday's 3 percent jump suggests investors are expecting more losses due to the U.S. economic recovery, robust dollar and the view that the Federal Reserve will raise rates sooner rather than later.

Gold could fall towards $800-$900 an ounce, a level not seen since the 2008/2009 financial crisis, as it is no longer regarded as a decent portfolio diversifier, hedge fund Red Kite said on Monday.

Holdings of the largest gold-backed exchange-traded fund, SPDR Gold Trust, on Monday fell 1.8 tonnes to a six-year low. The fund has seen outflows of 15.8 tonnes so far this month.

"A firmer U.S. dollar is generating renewed selling pressure, the situation being compounded by ongoing outflows from the gold ETFs," Commerzbank said in a note.

Silver was down 0.1 percent at $15.56 an ounce. Spot platinum was up 0.3 percent at $1,195.80 an ounce, while spot palladium was up 0.7 percent at $763.85 an ounce.

(Additional reporting by A. Ananthalakshmi in Singapore; Editing by Michael Urquhart and David Evans)