UPDATE 5-Gold rises slightly, bullion ETF holdings hits peak

(Recasts, updates with closing prices, market activity, adds NEW YORK to dateline)

By Frank Tang and Atul Prakash

NEW YORK/LONDON Aug 2 (Reuters) - Gold ended a tad higher in quiet summer trade in New York on Thursday, as precious metals investors kept taking trading cues from other financial markets.

Bullion held by StreetTRACKS Gold Shares GLD.N, the world's largest gold exchange-traded fund, surged to a record high, signaling growing interest in the precious metal as a portfolio diversifier. [ID:N02228540]

Spot gold XAU= was quoted at $664.60/665.20 an ounce by 3:36 p.m. EDT (1936 GMT), compared with $664.10/664.90 late in New York on Wednesday, when prices fell as low as $659.

Most-active gold for December delivery GCZ7 on the COMEX division of the New York Mercantile Exchange settled up 70 cents at $676.60 an ounce, dealing between $674 and $679.40.

"Amongst the precious metals complex, we favour gold over the other metals," said John Reade, head of metals strategy at UBS Investment Bank.

"Firstly, long positioning has been largely eliminated from gold following the recent spike and retracement, whereas substantial long positions remain in platinum and palladium. Secondly, should markets start to price in systemic risk, gold could benefit from safe-haven buying."

Gold, traditionally seen as a safe-haven asset, has recently been put in the same category as other commodities, which are considered riskier investments. It also becomes less attractive when interest rates rise as it is a zero-yielding asset.

Major currencies steadied, as investors took a breather from the burst of credit and equity-driven volatility, and awaited direction from stocks and comments from the European Central Bank (ECB).

RECORD HIGH GOLD ETF

Gold held by StreetTRACKS gold ETF GLD.N XAUEXT-NYS-TT, which accounts for 80 percent of the metal held by all such funds, surged more than 10 tonnes to a record high of 506.69 tonnes on Thursday from a day earlier, surpassing mid-April's peak of 500.7 tonnes.

David Rinehimer, director of Citi Futures Perspective in New York, said the rally in gold over the past few years prompted investors to buy gold and to allocate a certain percent of their portfolios in bullion.

"The acceptance of it as an alternative investment class tended to attract investor capital into the market," Rinehimer said.

In mining news, Barrick Gold Corp. (ABX.TO) is "cautious" about the approval process for its Pascua-Lama gold project and could face construction delays if it can't soon reach agreements with the governments of Chile and Argentina, Chief Executive Greg Wilkins said on Thursday. [ID:nN02242213]

Meanwhile, South Africa's biggest miners' union, the National Union of Mineworkers, said Thursday it would mobilize workers to strike over a wage deadlock with gold producers. [ID:nL02675126]

The world's second largest gold miner, Newmont Mining Corp. (NEM.N), on Thursday posted a quarterly loss and it continued to expect its full-year gold sales between 5.2 million and 5.6 million ounces, with costs at $375 to $400 per ounce. [ID:nN0263388]

Gold hedging by mining companies fell by 5.4 million ounces to 31.2 million in the second quarter of 2007 and for the full year, hedging is expected to drop between 11-13 million ounces, a report said. [ID:nL02854704]

In investment news, Japan's first exchange-traded fund tracking a gold price index was launched with initial assets of 5.096 billion yen ($43 million) on Thursday, fund manager Nomura Asset Management Co. Ltd. said. [ID:nT353007]

And India's gold under two exchange-traded funds increased in July compared to the previous month. [ID:nBOM38499]

Platinum XPT= fell to $1,281/1,285 from its previous finish of $1,283/1,282 an ounce in New York, while silver XAG= was at $12.95/12.99 an ounce, versus $12.89/12.94 late in the U.S. market on Wednesday. Palladium XPD= was quoted at $362/367, compared to its Wednesday's close of $362/366.

(Additional reporting by Sylvia Westall in London)