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Softer COMEX gold mulls India, dollar, oil

NEW YORK, Aug 21 (Reuters) - COMEX gold eased Wednesday, drifting in summer trade with a firm dollar capping the market and the bottom of the range reinforced by physical bullion demand and uncertainty about higher oil prices and inflation.

Participants expect gold to trade sideways between $300 and $320 an ounce at least until the unofficial end of summer after the U.S. Labor Day holiday on Sept 2.

December gold settled $1.10 lower at $309.30 an ounce, retracing Tuesday's $2.70 gain. The $311-$307.50 range stretched within easy reach of the $306 low in Monday's shakeout.

Spot gold was last at $307.70/8.20, down from Tuesday's New York close at $308.75/25 but improved from Wednesday's late fix in London at $306.55.

"Gold traded lower as the dollar made some good gains. Gains in crude oil prices as US-Iraq tensions rise and an increase in physical demand from India should help support gold over the coming sessions." wrote analyst James Moore in a daily commentary from TheBullionDesk.com.

Moore saw gold in a $306-310 short-term range.

The dollar has firmed against the euro and yen this week, although it sagged Wednesday.

A strong dollar makes gold more expensive overseas. It raises the prospect of scaring off Japanese investors, although they were among the big buyers early this year, partly because deposit insurance reform raised fears about a run on the yen.

Middle East bullion buying has perked up in recent weeks, dealers said, puzzling about any connection with reports Monday that Saudi Arabian investors were pulling tens of billions of dollars out of U.S. assets in response to deteriorating relations since Sept 11.

Meanwhile, demand from India, the world's largest consumer of physical gold, has reportedly put a floor in spot gold at $304/305.

India is entering its festival season of peak demand. But a weak monsoon is expected to severely crimp rural incomes and slash buying of fabricated gold compared to 2001 levels.

"There is reasonable Indian demand in the market," said a bullion dealer. "We're working small orders, scaled down."

The dealer said he could not report much new investment flow. Customers were fishing around for options quotes, mainly looking to sell puts in gold and silver, a strategy that could be profitable if market volatility drops and/or prices rise in a range-trading environment.

The Dow Jones industrial average was up 35 points in afternoon trade, as investors showed cautious optimism that the summer bear market that helped lift gold to 2-1/2 years highs in June was over.

Crude prices stayed strong after Monday's surge to 18-month highs over $30 a barrel in New York.

"To the extent that higher prices are somewhat inflationary, that has an impact on a lot of things," another trader said. "But oil markets are so volatile that one month does not a trend make. So I'm not sure what the correlation is lately on gold and oil."

September silver slipped 1.7 cents to $4.42 an ounce in a $4.415-$4.465 range. Spot silver was quoted $4.42/44, off versus $4.43/45 late Tuesday. The fix was $4.44.

NYMEX October platinum continued to pull back, ending down $4.20 at $542.50 an ounce. Spot platinum was at $540.50/548.50.

September palladium fell $3 to $319 an ounce. Spot last fetched $315/327.