UPDATE 3-Gold edges down as dollar holds gains, oil eases

* Gold edges down as dollar holds gains, oil eases

* Inflation fears underpin the metal above $925

* Chinese demand firm in first half of 2008

LONDON, July 4 (Reuters) - Gold inched lower in Europe on
Friday as the dollar held onto the last session's gains against
the euro and as oil prices eased.

Concerns over rising inflation are firmly underpinning the
metal, however.

Trading is set to be light on Friday with New York closed
for the Independence Day holiday, potentially leading to
increased volatility in the market.

Gold XAU= eased to $931.00/932.00 an ounce at 0940 GMT
from $932.70/934.70 late in New York on Thursday.

Nonetheless traders expect to see the metal well supported
above $930 an ounce, as inflation fears driven by high energy
prices boost the precious metal's appeal as a hedge.

"Indicators are still positive for gold -- high energy
prices (and) the ongoing inflation trend are definitely adding
support to gold," said Frederic Panizzutti, a trader at MKS
Finance.

Gold dipped 1 percent in New York on Thursday as the dollar
rallied against the euro, benefitting from a less hawkish than
expected outlook on interest rates from the European Central
Bank and firmer-than-forecast U.S. payroll data.

A stronger dollar typically pressures gold, which is often
bought as an alternative investment to the U.S. currency. A
softer greenback makes dollar-priced gold cheaper for holders of
other currencies.

The U.S. currency steadied on Friday morning near one-week
highs against the euro, pressuring gold. [ID:nL045012]

Oil prices have also slipped a touch after hitting new
all-time highs on Thursday of $145.85 a barrel as tensions
between Iran and Israel inspired traders to stock up on oil
ahead of the Independence Day holiday. [ID:nSIN37299]

July 4 weekend marks the peak of the U.S. summer driving
season, a period of strong demand for gasoline as Americans take
to the road for holidays.

Gold is typically bought as a hedge against oil-led
inflation.

"Speculative market activity saw crude oil prices hold
steady at record levels on medium to long-term supply fears,"
Manqoba Madinane, an analyst at Standard Bank, said in a note.

"This should further anchor global inflation expectations,
and with equity markets remaining under pressure, precious
metals should remain an attractive haven for investment funds."

Exchange-traded fund holdings of the precious metal have
increased as the dollar has weakened and inflation fears have
flared.

New York's SPDR Gold Trust, the world's largest ETF backed
by physical gold, holds 658.38 tonnes of the precious metal,
down a touch from Thursday but close to its all-time record
above 663 tonnes.

In India, the gold holdings of five ETFs rose 4 percent
month-on-month in June to 4.76 tonnes, the highest since the
funds were launched last year.

Fund managers attributed the rise to weak equities boosting
the appeal of commodities as an asset class.

Meanwhile, the chairman of the Shanghai Gold Exchange, Shen
Xiangrong, said ordinary Chinese are investing more actively in
gold as a hedge against decade-high inflation [ID:nPEK343622]

Physical trading on the exchange rose 187 percent to 1,960
tonnes in the first six months of 2008, he said, exceeding the
previous year's annual total of 1,828 tonnes.

Among other precious metals, spot platinum XPT= fell to
$2,003.00/2,023.00 an ounce from $2,017.50/2,037.50 late in New
York.

Spot palladium XPD= slipped to $452.50/460.50 an ounce
from $460.50/468.50 an ounce, while silver XAG= eased to
$18.04/18.10 an ounce from $18.21/18.31.

(Reporting by Jan Harvey; Editing by Peter Blackburn)