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Gold fell to its lowest in more than a week on Tuesday, but recovered with oil prices after it failed to break key support as the market waited for a statement from the US Federal Reserve, traders said.
Spot gold fell to $573.10 an ounce, its lowest since October 12, after news that gold held by Eurosystem central banks fell by 112 million euros to 175.2 billion euros in the week ended October 20.
By 1540 GMT the metal was quoted up at $582.20/582.95 an ounce compared with $580.40/581.90 in New York late on Monday. "That (central bank news) was the trigger for the market to test the downside," a trader said.
"But they couldn't force it (below) $570 and gave up ... Oil recovered to above $59 and gave gold a leg up."
He added that funds which had bet on lower prices in the future by selling short were cutting their positions and buying back gold, helping to push prices higher.
Crude oil was up 57 US cents a barrel at $59.38.
Earlier this year fears that persistently high oil prices could stoke price pressures pushed gold, seen as a hedge against inflation, to a 26-year high of $730 an ounce in May.
Worries about rising demand and supply disruptions pushed oil to record highs above $78 a barrel in July.
But gold sentiment has over the past few weeks been damaged by lower oil prices and a stronger dollar. "Investor buying has remained weak," Barclays said in a research note. "In the absence of a strong fundamental footing, externals factors, particularly oil and the dollar, are likely to continue to provide the gold market with direction."
Last week Opec agreed to cut oil supplies by 1.2 million barrels. But doubts about whether oil producing countries would comply have held prices below $60.
"They (Opec) can talk about cutting production ... But the jury is still out on whether they will," a trader said. "Gold sentiment is bearish ... It's quiet, the market is waiting for the (US Federal Reserve's) statement."
The US central bank concludes a two-day interest rate meeting on Wednesday. Expectations are that benchmark interest rates will be held at 5.25 percent.
But speculation that the Fed will highlight inflationary pressure in its statement has helped the dollar to rise.
"We do not envisage that any jawboning by the Fed would have more than a passing influence on gold," HSBC said in a research report. "Oil, however, may continue to exert influence, until it is clear the petroleum markets have found a bottom."
Fundamental support for gold was seen coming from the Indian wedding season, while technical support was seen between $570 and $573, an area of congestion from early October.
Resistance was initially around $590, followed by the area between $602 and $609.
Silver was mostly tracking gold, even though earlier this year it had managed to decouple itself as fund investors piled into the market.
Silver was firm at $11.68/73 an ounce compared with $11.58/11.65 late in New York on Monday and palladium was up at $319/324 an ounce compared with $315/320.
Platinum was down at $1,054/1,059 an ounce from $1,067/1,072. Earlier on Tuesday it hit $1,050, the lowest since late March.

Copyright Reuters, 2006

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