Goldld firms on weaker dollar

LONDON - Gold edged up on Wednesday, recovering earlier losses, as the U.S. dollar gave up gains versus the euro and stock markets opened lower, with investors spooked by news Bank of America may need $34-billion (U.S.) in extra capital.

Its rise was capped, however, by technical factors and hopes the global economic slowdown is bottoming out.

Spot gold was bid at $904.20 an ounce at 0855 GMT, against $903.20 an ounce late in New York on Tuesday.

Societe Generale analyst David Wilson said while the dollar and stocks were supportive, gold's gains were being limited by optimism the worst of the global economic downturn may be over.

He said equity markets' ability to shake off weaker than expected U.S. GDP data last week and more positive economic news from China was boosting appetite for assets typically seen as riskier, such as stocks.

"The increasing amount of non-negative economic news is driving investors to look more favourably at equities, and even base metals, and obviously that is going to be to the detriment of gold," he said.

"As more positive economic signals appear, there will be less incentive to hold gold as a safe haven play."

Stock markets slipped and the yen - which, like gold, is often bought as a safe haven - rose on Wednesday after news that Bank of America will need billions of dollars in extra capital, which blunted appetite for risk.

The dollar also gave up gains versus the euro, having risen against the single currency in Asian trade. Gold is often bought as an alternative to the U.S. currency and tends to move in the opposite direction to it.

Investors are awaiting the outcome of further U.S. bank stress tests later this week, as well as key U.S. economic data and an interest rates announcement from the European Central Bank on Thursday.

Silver prices tracked gold to rise slightly, but remained below the last session's near six-week high. Data showed ETF Securities' Physical Silver exchange-traded fund added nearly 200,000 ounces to its reserves on Tuesday.

However, holdings of the world's largest silver-backed ETF, the iShares Silver Trust dipped for the first time in more than a month, by just over 3.5 tonnes.

"The gains yesterday led the gold/silver ratio to its lowest in over seven months, with the industrial metal looking more positive from a technical view, having broken through its February trendline," said TheBullionDesk.com analyst James Moore.

"The target now is for silver to hold ground above $12.80 and to challenge overhead resistance from March highs around $13.90 and February highs around $14.64," he added.

Silver was bid at $13.42 an ounce against $13.34.

Among other precious metals, spot platinum was bid at $1,126 an ounce against $1,125.50, while spot palladium was bid at $221 an ounce against $218.50.