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NEW YORK/LONDON (Reuters) - Gold rose on Thursday, holding firm against a stronger dollar for a second straight day, as escalating concerns over debt in some euro zone economies prompted investors to buy both the metal and greenback as safe havens.
Gold benefited as doubts about Ireland's ability to repay its debts spread, and uncertainty ahead of a joint statement from the G20 meeting, which highlighted deep divides on currencies and trade imbalances among member countries.
Yields on 10-year Irish bonds rose well above 8 percent to a record high over comparable German debt. Investors worried the country wouldn't be able to cut spending as planned and may require a bailout. The news sent the euro to a five-week trough and the dollar sharply higher against a basket of currencies.
"Gold is resuming its role as a safe haven in times of crisis as the situations in Ireland and some European countries are getting worse. So, it has also been separating itself from the euro lately because of the safe-haven play," said Donald Selkin, chief market strategist at National Securities Corp.
Gold tends to fall when the dollar rises, as this erodes the metal's appeal as an alternative investment, but in times of extreme risk aversion both assets can benefit.
Silver prices inched up and volume relatively steadied after setting a new record earlier this week, with open interest showing a further decline on Wednesday when the U.S. futures showed a 7 percent drop.
Spot gold fell 0.3 percent to $1,406.99 at 3:34 p.m. EST (2034 GMT). Earlier in the session, it reached a high of $1,417.80 an ounce, closing in on the record $1,424.10 set earlier this week.
U.S. gold futures for December delivery settled up $4 at $1,403.30 an ounce.
Estimated COMEX gold volume at 3:30 p.m. was near 180,000 lots, largely in line with the 250-day average, preliminary Reuters data showed, and Wednesday's open interest eased 1.2 percent from a record high of 650,764 lots set in the previous session.
The dollar rose to a five-week high against the euro due to worsening debt problems in Ireland, overshadowing attempts at a Group of 20 summit to ease tensions over currency and trade policies. <FRX/>
There are signs that the inverse link between gold and the dollar index is weakening, as the hourly correlation between the two has decreased to a -0.22 at 2000 GMT from a peak near -0.9 earlier in session. (Graphic: link.reuters.com/far94 )
VTB Capital analyst Andrey Kryuchenkov said that, while the precious metal is susceptible in the short term to losses in the dollar, in the longer run the increased focus on euro zone debt issues were likely to be positive for gold.
"Now that we are clear on QE2 (the second round of U.S. quantitative easing announced last week), the attention is back on the euro zone debt troubles, which is bullish for gold should risk aversion escalate from here," he said.
He said investors should watch "CDS spreads on Ireland/ Portugal, the Vix (U.S. volatility index), euro zone peripheral yields spreads over the bund and naturally the dollar index," to gauge risk aversion among investors.
Irish and Portuguese debt premiums over German government bonds hit new highs on Thursday, pushing up other peripheral euro zone yields, as scepticism grew that Ireland could escape a Greek-style financial bailout. <GVD/EUR>
In Asia, traditionally a key region for gold consumption, gold scrap selling increased after spot prices hit record highs, though it fell short of meeting burgeoning demand.
Among other precious metals, silver rose 1.5 percent to $27.60 an ounce. Holdings of the iShares Silver Trust, the world's largest silver exchange-traded fund, rose 3.4 percent to a record 10,718.82 tonnes by November 10, and now traders eagerly waited to see if holdings could drop sharply after the sharp liquidation.
The ratio of gold to silver -- the number of ounces of silver needed to buy an ounce of gold -- slipped back toward the 2-1/2 year low near 50 it reached earlier this week. (Graphic of gold-silver ratio: link.reuters.com/heq94q)
Platinum rose 0.8 percent to $1,749.49 an ounce, while palladium climbed 1.3 percent to $707.72.
Reporting by Frank Tang and Jan Harvey; Editing by Lisa Shumaker