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Monday, 02/01/2010 9:39:34 AM

Monday, February 01, 2010 9:39:34 AM

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Gold rises above $1,080/oz as dollar falters
Jan Harvey
LONDON
Mon Feb 1, 2010 8:03am EST

LONDON (Reuters) - Gold firmed in Europe on Monday as the dollar extended losses versus the euro after stronger than expected euro zone manufacturing data, boosting interest in the precious metal as an alternative asset.

Prices remain vulnerable to further losses, however, after falling 1.6 percent in January, analysts said, with the dollar's upward trend expected to resume.

Spot gold was bid at $1,084.60 an ounce at 1238 GMT, against $1,079.20 late in New York on Friday. U.S. gold futures for February delivery on the COMEX division of the New York Mercantile Exchange rose $1.80 to $1,084.80 an ounce.

"Gold has done relatively well, looking at what has been happening in other commodities," said David Thurtell, an analyst at Citigroup. "The dollar has been strong, and gold was always going to struggle on the basis of that."

"It is difficult to see the dollar weakening further," he said. "People have definitely been seeking out gold as a currency hedge, and if that hedge is no longer needed, that is going to cap some of the demand for gold."

The dollar edged lower versus the euro on Monday, but the single currency continued to hover close to seven-month lows amid concerns over the fiscal health of some euro zone countries.

The dollar stayed close to a six-month high versus a currency basket after Friday's stronger-than-forecast gross domestic product data suggested the United States is recovering faster than the euro zone and Japan.

Strength in the U.S. unit curbs gold's appeal as an alternative asset and makes dollar-priced commodities more expensive for holders of other currencies.

Among other commodities, oil steadied but traded close to six-week lows amid fresh concerns over the outlook for global growth. Industrial metals were under pressure meanwhile from expectations China may tighten monetary policy.

Gold tends to track crude prices, as the metal can be bought as a hedge against oil-led inflation.

ETF HOLDINGS DECLINE

Holdings of the world's largest gold-backed exchange-traded fund, the SPDR Gold Trust were unchanged on Friday, but down 21.7 tonnes or 1.9 percent in January.

Holdings of the biggest silver ETF, the iShares Silver Trust, also declined 1.1 percent or 107.99 tonnes last month. Analysts said outflows from precious metals ETFs could undermine prices if they persist.

In India, historically the world's biggest gold consumer, demand for the metal abated on Monday as the rupee weakened versus the dollar after buying picked up in January when traders stocked in anticipation of wedding demand.

Analysts said with consumption weak, gold prices were looking vulnerable to a further correction if the dollar strengthened further.

"Speculators and retail investors are still reluctant to re-enter the market, having booked profits during the latest correction," said VTB Capital analyst Andrey Kryuchenkov. "The market was barely clinging to key support above $1,082/1,080."

"However a stronger dollar from here could well push gold prices back toward $1,060, with our worst case scenario still suggesting losses to $1,026," he added.

Among other precious metals, silver was at $16.36 an ounce against $16.16. Platinum was at $1,519 an ounce versus $1,500, and palladium was at $419.50 versus $413.

Holdings of ETF Securities' U.S.-based platinum exchange-traded fund rose just over 30,000 ounces or 14 percent on Friday, the company said.

"The launch of physically backed ETFs in the U.S. saw record inflows into both platinum and palladium last month with approximately 192,000 ounces of platinum and 340,000 ounces of palladium added," said TheBullionDesk.com analyst James Moore.

http://www.reuters.com/article/ousivMolt/idUSTRE5B10OV20100201