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Gold holds firm as Greek hopes lift euro

London, February 9, 2012

Gold prices held below $1,735 an ounce in Europe on Thursday, underpinned by gains in the euro as Greece edged closer to a bailout deal, although stock market fluctuations after a raft of disappointing corporate results kept a lid on gains.

Prices are up 10.9 percent so far this year, buoyed by the view that US monetary policy will remain extremely loose.

It has failed to benefit, however, from the jitters over European debt that sent it to a series of record highs in recent years, as these were offset by currency moves. Gold prices rallied nearly 5 percent to then-record highs in the fortnight after Greece agreed its first bailout deal in May 2010.

"Gold has been trading along with everything else. It doesn't seem to be a risk trade at the moment, as much as a dollar/euro trade," said Citigroup analyst David Wilson.

As such, a failure by the Greek authorities to secure a deal could hurt gold, he said. "Strangely, if Greece doesn't agree to austerity in the next couple of days, it might be negative for gold in terms of dollar/euro."

Spot gold was at $1,733.80 an ounce against $1,733.39 an ounce late in New York on Wednesday, while US gold futures for February delivery were up $3.60 an ounce at $1,732.90.

Expectations that Greece is inching closer to a bailout deal lifted the euro to a fresh two-month high on Thursday and also supported European shares, although they briefly turned negative as disappointing results from Dutch bank and insurance group ING and Credit Suisse weighed on the market.

Greece's battle to avoid default is set to dominate the markets on Thursday, with its leaders so far failing to agree on reforms and austerity measures.

Greece's partners in the European Union and the International Monetary Fund are increasingly exasperated by a lack of agreement on the measures they demand in return for a 130 billion euro ($172 billion) bailout.

Euro zone officials say the full package must be agreed with Greece and approved by the EU, European Central Bank and IMF before February 15.

"All eyes are on Europe this week as the clock ticks towards the deadline for Greek debt negotiations," said UBS in a note.

"That the talks appear to be reaching their final stages, with a press conference scheduled after the Eurogroup meeting later in the day, is buoying the euro for now. The optimism is unlikely to last, though."

"The ECB rate decision is also due today, but our economists are not expecting any change in policy," it added. "The focus will be on the press conference following the announcement, where the ECB will be grilled on the potential for official sector participation in Greek debt restructuring."

All eyes will be on what the ECB is willing to do to help Greece when it holds its monthly policy meeting, with interest rates expected to stay on hold ahead of a major funding operation later this month.

Among other precious metals, silver was down 0.3 percent at $33.85 an ounce. Spot platinum was down 0.2 percent at $1,657.99 an ounce, while spot palladium was up 0.4 percent at $712.97 an ounce.

The chief executive of Lonmin, the world's third-largest primary platinum producer, said it could be forced to review its closely watched 2015 output target if safety stoppages and strikes continue to batter the South African-based industry.

Expectations that platinum output from number one supplier South Africa could be hurt by labour and safety-related stoppages and power outages has helped push prices up 19 per cent this year.

The metal has also narrowed its historically unusual discount to gold to less than $80 an ounce, from around $230 an ounce earlier this year. - Reuters




Tags: Gold | London | UK | prices | Euro zone | Greek |

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