* Lower prices attract buyers, euro zone crisis underpins

* Prices still vulnerable to wider market volatility

* Platinum retains hefty discount to gold

By Jan Harvey

LONDON, Sept 29 (Reuters) - Gold prices rose on Thursday in choppy trade, with strong physical demand and gains in the euro lending support, but investors remained cautious towards the precious metal after this month's intense volatility.

Spot gold was up 0.7 percent at $1,619.19 an ounce at 1358 GMT. The metal fluctuated as financial markets digested a German vote in favour of boosting the euro zone rescue fund, amid fears that policymakers still lack a cohesive plan to solve the region's debt crisis.

Concern over euro zone leaders' ability to tackle debt was a key factor driving gold to a record $1,920 this month, but the metal has since suffered from wider market instability as investors were forced to sell gold to cover losses elsewhere.

"The need for liquidity could still cap upward momentum for gold," said Barclays Capital analyst Suki Cooper. "From here prices should find some good support from physical demand, but we might not see... the same level of investment buying as before."

The broader picture is still firmly underpinning gold despite its retreat, she added. "The macro backdrop still looks very positive, and it's supportive of prices that we haven't seen liquidation of exchange-traded funds at a very fast pace."

The euro was firmer against the dollar after the German vote, though it pared gains a touch after U.S. data showed fewer Americans than expected applied for first-time jobless benefits in the latest week.

Stock markets climbed on both sides of the Atlantic after the numbers, and a revision to second-quarter U.S. growth data.

Investors remain wary that fresh financial market ructions linked to the euro zone debt crisis could spark more losses in gold, which this week has fallen as much as 20 percent from September's record high.

Typically the metal has been seen as a safe store of value at a time of volatility in other assets. Although its recent instability has undermined this reputation, it remains more stable than many other assets, particularly among currencies.

"Gold is the one currency without debt liabilities, so if you are worried about the debt situation in the U.S. and euro zone, an obvious currency to look towards is gold," said Danske Bank analyst Christin Tuxen. "There are still reasons for it to be regarded as a safe haven."

U.S. gold futures GCv1 for December delivery were up $2.90 an ounce at $1,621.00.

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Asset returns in 2011: r.reuters.com/suz52s

Gold correlation with dollar: r.reuters.com/ryx52s

Inflation adjusted gold price: r.reuters.com/pun62s

Gold in different currencies: r.reuters.com/wun62s

Gold/silver ratio: r.reuters.com/xyx52s

Gold/platinum ratio: link.reuters.com/xez92s

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DEMAND STRONG

Despite its recent losses, gold remains one of the best performing assets so far this year, up 15 percent against a 6 percent drop in European shares , a 26 percent fall in copper prices and a 2 percent rise in the euro's value versus the dollar.

Physical gold demand in Asia has been extremely strong as prices retreated from record highs. Premiums for gold bars were at their strongest since at least February in Singapore and Hong Kong and their highest in a year in India.

Meanwhile, holdings of gold-backed exchange-traded funds have remained relatively robust.

"Volumes have been heavy as investors, on the Exchanges at least, have been forced to dump gold for cash," said RBS in a weekly note on Thursday. "There has been very little movement in the ETFs, however, signalling that the core holders are not going to desert gold as an important risk hedge."

Among other precious metals, silver was up 1.9 percent at $30.42 an ounce. Silver prices have suffered hefty losses this month, plunging by more than a quarter as the support offered by higher gold prices evaporated.

Spot platinum was up 0.5 percent at $1,529.24 an ounce, and palladium up 1.3 percent at $621.72 an ounce.

Platinum retained its unprecedented discount to gold prices as buyers worried a more anaemic economic environment would weigh on demand for industrial precious metals.

"Platinum margins are being squeezed by rising labour costs, and prices are falling due to weakness across the commodities complex," said Standard Chartered in a report.

"While we expect prices to trend higher in the year ahead, downside risks are elevated. High-cost producers might therefore want to sell into rallies as insurance against further margin erosion." (Reporting by Jan Harvey; editing by Keiron Henderson)

Source: http://www.reuters.com/article/2011/09/29/markets-precious-idUSL5E7KT1WW20110929