Gold steadies on softer dollar, but fund outflows continue

By A. Ananthalakshmi

SINGAPORE (Reuters) - Gold was holding steady above an 11-week low on Wednesday, helped by a softer dollar, but gains were limited as investors worried over a looming U.S. interest rate increase and outflows from bullion-backed funds continued.

Spot gold was steady at $1,175.63 an ounce at 0338 GMT after gaining 0.4 percent in the previous two sessions. The metal had fallen to $1,162.35 on Friday, its lowest since March 19, after a strong U.S. nonfarm payrolls report.

The dollar was nursing losses but that was not enough to push up gold significantly as investors continued to pull money from funds.

Holdings in SPDR Gold Trust, the top gold-backed exchange-traded fund (ETF), fell 0.42 percent to 705.72 tonnes on Tuesday, the lowest since January.

"We continue to see outflows from ETFs and this may limit price moves to the topside," said MKS Group trader Sam Laughlin.

Holdings of the top eight ETFs were at their lowest in five years.

Outflows from the funds can undermine any rally in gold.

The $1,170 level continues to provide support, but the price will face resistance at $1,185, Laughlin said.

Physical demand is not providing much support for gold.

Expectations of a further drop in bullion and better returns from surging equities in China have tamed demand for the precious metal in Asia.

Friday's drop to an 11-week low failed to draw much interest in the world's top two buyers, equities-obsessed China and India, where worries about a poor monsoon and lack of wedding demand are holding demand down.

Traders were also waiting for U.S. retail sales data due on Thursday for clues about the strength of the economy and how that will affect the Federal Reserve's monetary policy.

Strong data could prompt the Fed to raise rates as soon as September, which could hit demand for non-yielding bullion.

The Greek debt crisis was also in focus as a possible trigger for safe-haven bids. Prime Minister Alexis Tsipras called on his fractious Syriza party to rally behind the government on Tuesday as time runs short to unlock funding from international lenders and avert a debt default.

(Reporting by A. Ananthalakshmi; Editing by Richard Pullin and Alan Raybould)