(Updates prices, adds comment)
* Gold drifts higher as dollar pares gains
* Prices hit technical support below $1,800/oz
* Euro zone debt jitters persist
By Jan Harvey
LONDON, Sept 13 (Reuters) - Gold prices rose in volatile trade on Tuesday after briefly extending the previous session’s 2.5 percent slide below $1,800 an ounce, as the dollar pared some of its early gains versus the euro, taking some pressure off the precious metal.
The euro remained in the doldrums however after a report that euro zone politicians may provide fresh support to debt-laden Greece was denied, and as the cost of Italy’s borrowing reached unsustainable levels.
Spot gold was up 0.7 percent at $1,824.89 an ounce at 1340 GMT, having earlier fallen as low as $1,798.75. It has dropped nearly 2 percent this week after posting its biggest monthly gain since November 2009 in August.
VTB Capital analyst Andrey Kryuchenkov said gold was set to recover its usual inverse trading relationship with the dollar, “provided the euro holds up and risk sentiment improves a little. Otherwise, extreme risk aversion will see bullion trading with the greenback again.”
Concerns over the ability of some euro zone economies — chiefly Portugal, Italy, Ireland, Greece and Spain — to manage their burgeoning debt helped drive gold prices to record highs above $1,920 an ounce earlier this month.
But the metal has faced headwinds around that level, twice failing to sustain a rise above $1,900 an ounce. Dollar strength has returned as a weight on gold after the currency has risen in line with the precious metal in recent years as both benefit from risk aversion.
“A stronger dollar may make the journey north more of a struggle,” said UBS in a report, noting that action by the Bank of Japan and Swiss National Bank to curb strength in the yen and franc meant “the dollar is emerging as the last safe haven among the world’s major currencies for risk-averse investors.”
“Clearly gold has opportunities here too, though a stronger dollar presents an obstacle in the very short term,” it added.
Today’s low near $1,795 is a key support level for gold, technical analysts at ScotiaMocatta said in a note, after the metal fell on Monday as traders cashed in gains to cover losses on other markets.
Below that $1,777 is the next key level, a breach of which will take prices right back to $1,704 an ounce, it added.
“You can hardly call (gold) a safe haven with these swings,” said Saxo Bank senior manager Ole Hansen. “Buyers still emerge on sell-offs, but it looks like the bullish investor has got to be a bit patient right now.”
“We have failed to make new highs despite the crisis intensifying over the last few days. (There) could be general risk reduction as banks are cutting/reducing lines to traders or profit is booked to offset losses.”
Silver was up 0.7 percent at $40.48 an ounce.
Holdings of the world’s largest silver-backed exchange-traded fund, the iShares Silver Trust , rose nearly 79 tonnes on Monday, their largest one-day inflow since August 23.
Spot platinum was up 0.3 percent at $1,806.50 an ounce, while spot palladium was up 2 percent at $716.22 an ounce.
“Gold prices have retained their premium over platinum for seven consecutive sessions, despite losing 2.4 percent yesterday..., as macro-economic woes continue to support safe haven interest,” said Barclays Capital in a note.
In supply news, Zimbabwe and Zimplats , the local unit of the world’s second-largest platinum producer Impala Platinum , said on Tuesday they had agreed to produce a revised plan for a law requiring mining firms to turn over a 51 percent stake to local blacks.
Zimbabwe is the world’s third-largest primary platinum supplier behind South Africa and Russia, with output of 280,000 ounces last year, or nearly 5 percent of global supply. (Reporting by Jan Harvey; Editing by Alison Birrane; Editing by William Hardy)