Gold rises above $1,100/oz amid currency fears

An employee displays a pair of gold footwear at the 'Gem and Jewellery India International Exhibition 2010' (GJIIE) in the southern Indian city of Chennai January 23, 2010.

Credit: Reuters/Babu

LONDON (Reuters) - Gold prices rose above $1,100 an ounce in Europe on Monday, with buying prompted by concern over the outlook for the currency markets ahead of a meeting of Eurogroup ministers in Brussels late in the day.

Spot gold was bid at $1,100.15 an ounce at 1016 GMT, against $1,092.40 late in New York on Friday. U.S. gold futures for April delivery on the COMEX division of the New York Mercantile Exchange rose $10.50 to $1,100.00 an ounce.

"Investors seem to be partly offloading euro-zone risk equally in gold and the U.S. dollar," said Pradeep Unni, senior analyst at Richcomm Global Services. "This is specifically the reason why gold is firm despite the greenback also being strong.

"Past data suggest that this decoupling phenomenon is more of a temporary development and (gold and the dollar) will switch to their inverse correlations in a short time frame," he added.

Euro zone finance ministers are expected to pile pressure on Greece to fully implement planned budget deficit cuts so the euro area will never have to deliver on its last week's pledge of support for Athens.

The euro retreated to near 9-month lows against the dollar on Monday as doubts intensified about whether policymakers in the euro zone will help debt-laden Greece.

Strength in the dollar usually weighs on gold, but when fears over financial market stability are rising, both sometimes benefit from risk aversion.

On the wider markets, European shares rose on Monday as investors awaited the euro zone finance ministers meeting. Concern of the fiscal health of Portugal, Ireland, Italy, Greece and Spain are lingering, analysts said. .EU

"Traders and investors will be looking for further expansion on the EU's "support" for Greece's debt problems, with the generally negative outlook for the PIIGS likely to further question the cohesion and direction of the euro," said TheBullionDesk.com analyst James Moore.

OIL HOLDS GROUND

Among other commodities, oil held near $74 on Monday after stronger-than-expected Japanese growth data was counterbalanced by concerns rising energy demand could be curbed by China's moves to tighten monetary policy.

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

On the physical markets, India's wholesale gold demand cooled off on Monday as prices edged toward the most-watched $1,100 an ounce-mark, after offtake picked up for the most part of last week, dealers said.

Holdings of the world's largest gold-backed exchange-traded fund, the SPDR Gold Trust, were unchanged at 1,106.378 tonnes on Friday.

Among other precious metals, silver was bid at $15.58 an ounce against $15.48.

The world's largest silver ETF, the iShares Silver Trust, said its holdings rose 48.84 tonnes or 0.5 percent from the previous business day to 9,446.40 tonnes as of Feb 12.

Platinum was at $1,518 an ounce against $1,512.50, while palladium was at $412 against $414.50.

"Only if (palladium) breaks out on either side of the $385-$425 an ounce range would it set a new trend for the medium term," said precious metals house Heraeus in a weekly report.

"We remain of the opinion that prices below $400 an ounce provide good opportunities for industrial end-users to cover some of their future requirements," it added.

(Reporting by Jan Harvey; Editing by Keiron Henderson)