* Euro, stock market recovery points to better risk appetite
* China's SAFE says gold too illiquid for asset allocation
* Coming up: ECB interest rates announcement, 1230 GMT
(Updates prices)
By Jan Harvey
LONDON, June 10 (Reuters) - Gold eased below $1,225 an ounce
in Europe on Thursday as stock markets rose and the euro climbed
against the dollar, reflecting sharper appetite for assets seen
as higher risk, at bullion's expense.
The precious metal briefly extended losses after China's
State Administration of Foreign Exchange (SAFE) said in an
annual report that the gold market is too small, illiquid and
volatile to be suitable for asset allocation. []
Spot gold <XAU=> was bid at $1,223.20 an ounce at 1117 GMT,
against $1,230.35 late in New York on Wednesday. U.S. gold
futures for August delivery <GCQ0> fell $5.40 to $1,224.70.
The euro <EUR=> rose on Thursday as strong demand at a
Spanish debt auction eased concerns about how the country will
fund its large debt, though caution before a European Central
Bank policy decision capped gains. []
Heavy losses in the euro on the back of European sovereign
debt concerns have lifted demand for gold this year as investors
sought to diversify out of the currency, analysts said. The
euro's brief bounce higher has temporarily curbed this buying.
"If you look at a chart of the euro, it's been punished
quite severely for some time now, and it is not unreasonable to
believe that it will have a bit of a bounce along the way," said
Simon Weeks, head of precious metals at the Bank of Nova Scotia.
"We are seeing an interim consolidation, with the euro
recovering a bit and gold down a bit. Overall I would expect the
euro to turn lower again and gold to turn higher, but it is not
going to be a one-way street."
European shares benefited from sharper risk appetite, paring
early losses to move higher by mid-morning. Asian stocks also
rose overnight after Federal Reserve Chairman Ben Bernanke gave
assurances the U.S. recovery was on a solid footing. []
Oil prices also rose nearly 1 percent, as confirmation of
strong Chinese overall exports in May outweighed weaker demand
readings in top consumer the United States. []
Trading was muted, however, ahead of a key policy
announcement from the European Central Bank due at 1230 GMT. The
ECB is expected to hold rates at 1.00 percent.
COIN, BAR DEMAND SOFTENS
Holdings of the world's largest gold-backed exchange-traded
fund, New York's SPDR Gold Trust <GLD>, at a record high
1,298.53 tonnes on Wednesday. []
However, demand for small investment products like coins and
bars has tailed off recently in Europe and the United States,
UBS analyst Edel Tully said in a note.
"Physical demand, relatively dampened since Wednesday of
last week, is now overshadowed by increased scrap supply out of
Asia," she said. "This price-dependent supply... suggests more
downside risk for the yellow metal in the short term."
Also on the supply side of the market, Statistics South
Africa said the republic's gold output fell 6.2 percent in April
from the same month of 2009. []
Among other precious metals, silver <XAG=> was at $17.99 an
ounce versus $18.07, palladium <XPD=> at $449.88 versus $447.50,
and platinum <XPT=> at $1,529.30 an ounce against $1,525.
The ratio of gold to platinum -- which shows how many ounces
of gold are necessary to buy an ounce of platinum -- lifted from
the six-month low of 1.22 it hit at the beginning of the week,
but platinum remains relatively inexpensive compared to gold.
The autocatalyst metal is suffering along with other
industrial commodities from a perception that economic growth is
not rising as much as might have been hoped, dealers said.
"Despite full order-books at various companies, with the
background of the continuing debt crisis in Europe, investors at
the moment appear to be sceptical about economic developments --
and the U.S. is not looking any better in this context," said
precious metals house Heraeus in a weekly report.
(Editing by Alison Birrane)
