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COMEX gold steadies before weekend, quarter end

NEW YORK, June 27 (Reuters) - COMEX gold recovered Friday from a new 7-week low and disappointment over Wednesday's smaller-than-hoped-for U.S. interest rate cut, with options-linked buying and quarter-end squaring helping to steady prices.

The gold-currency relationship was not as tight as it has been lately, with bullion starting higher even before the euro tried to rally back from its own 6-week low to the dollar.

August gold closed up $1.30 at $345.50 an ounce. It traded up from $343.30, its lowest since May 8, to $346.00, after falling $5.40 on Thursday.

Estimated volume was a quiet 26,000 contracts Friday.

The contract is down $30 since topping at $375.80 on May 27, when the euro hit a lifetime high against the dollar. So short-covering is no surprise, especially before a weekend and the approaching month- and quarter-end on Monday.

The euro fell to $1.1402 and was last at $1.1424/30, up slightly from $1.1419/22 late Thursday.

"It is tracking the euro slightly," said Robert Gottlieb, head of bullion dealing at HSBC.

Over-the-counter options expired in the morning, with hedging against the popular $345 call options driving London spot prices above that strike level.

Spot gold was last at $344.90/5.60, up from the close at $343.60/4.40. London's afternoon fix was $345.50.

"It dropped like $22 bucks in last seven sessions. The RSI (relative strength index) was getting down below 30. My feeling is it was ripe for little bit of a bounce," said James Pogoda, precious metals vice president at Mitsubishi International Corp.

Pivotal support is pegged at the 200-day moving average at $341 in August futures and $339.90 basis spot.

Some players thought the Federal Reserve skimped by only cutting 25 basis points off key rates, wanting more aggressive economic stimulus to ensure that disinflation does not turn into a deflation/contraction scenario.

Gold has benefited from the Fed's 13 easings since 2001 and the fall in nominal U.S. interest rates to 45 year lows this week, which have brought negative real rates and eroded the value of the dollar.

Gold hit its highest since August 1996 in February near $390 an ounce, on prewar market jitters about the dollar, economy and stock markets.

Many gold bulls needed at least a half percentage point cut to hold their positions. COMEX was too overbought in May, net long an unprecedented 85,000 contracts, and many of those positions are still hanging over the market.

By last week the speculative long had contracted to 64,175 contracts. Traders are looking to CFTC Commitments of Traders data late Friday to judge the market's residual top heaviness.

By Friday, September silver had become the active contract. It fell 1.5 cents to $4.518 an ounce, trading between $4.56 and $4.51. July deliveries start with first notice day Monday.

Estimated volume was 25,000 lots, with 7,219 switches.

Spot silver closed at $4.50/52, down from $4.52/54 late Thursday. It fixed at $4.525.

NYMEX October platinum rose $8.80 to $656.20 an ounce. Spot fetched $664.00/669.00.

September palladium fell $1.95 to $176.50 an ounce. Spot palladium was at $173.50/179.50.