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Gold holds near $1,140/oz as investors eye Greece
LONDON (Reuters) - Gold held near $1,140 an ounce on Friday, caught between contrasting pressures, as speculation Greece could default on its sovereign debt supported both the dollar and interest in the metal as a haven from financial risk.
Spot gold was bid at $1,140.25 an ounce at 5:38 a.m. ET, against $1,140.45 late in New York on Thursday. U.S. gold futures for June delivery on the COMEX division of the New York Mercantile Exchange eased $1.70 to $1,141.30 an ounce.
The dollar hit one-year highs against the euro, keeping up pressure on gold prices, as investors worried Greece will have to seek a bailout to avoid default. While it later gave up those gains, investors remain nervous toward the euro.
Gold usually has a close inverse relationship to the dollar, falling as the U.S. currency strengthens. However, that link has weakened, with gold prices rising 4 percent since the start of the year despite the dollar's 7 percent climb versus the euro.
Barclays Capital analyst Suki Cooper said gold is benefiting from better appetite for the metal among short-term investors, adding she expects gold's relationship to the euro-dollar to weaken as the year progresses.
"Other concerns, like inflation and sovereign debt risk, will come into play more, and we will see investors turning to gold," she said.
Greek Prime Minister George Papandreou asked on Friday for the activation of a euro zone and International Monetary Fund aid package aimed at pulling the debt-laden country out of a debt crisis.
Concerns have grown this week over Greece's ability to service its debts, pushing up the cost of insuring against a debt default to a record high and widening spreads between Greek and German government debt yields to previously unseen levels.
On Thursday Moody's Investors Service cut Greece's rating by one notch, citing a risk of higher debt yields.
"As the level of uncertainty around Greece and other weak European states mounts, gold prices may be supported by 'safe heaven' demand even in light of a stronger U.S. dollar," said John Meyer, an analyst at Fairfax investment bank, in a note.
"The IMF has warned recently that growing sovereign debt levels are the major threat to the global economy," he added. "Gold investments may protect against currency devaluation in times of rising government debts."
Gold priced in euros rose to a peak of 863.28 euros an ounce in Asian trade, close to the record high of 864.75 euros an ounce it reached earlier this month.
Meanwhile physical demand for the metal was soft in major consumer India, dealers in Mumbai reported, as buyers awaited lower prices.
Holdings of the world's largest gold-backed exchange-traded fund, New York's SPDR Gold Trust, eased nearly 1 metric ton on Thursday, though they remain near record levels.
Among other precious metals, silver was at $17.96 an ounce against $17.95, platinum at $1,730 an ounce against $1,740, and palladium at $556 against $561.
Autocatalyst materials platinum and palladium are succumbing to profit taking, dealers said. Their gains have outstripped those of other precious metals this year amid expectations car demand will rise after last year's slump.
Platinum group metals-backed exchange-traded funds launched in New York earlier this year are also absorbing the metals.
The ETFS Physical Platinum product held nearly 340,000 ounces of metal on Wednesday, while ETFS Physical Palladium had holdings of nearly 670,000 ounces, equivalent to more than 10 percent of total palladium mine supply last year.
(Editing by James Jukwey)
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