* Traders take profits after gold hits 11-week high
* Oil falls below $40 a barrel
* Dollar declines against euro underpin gold levels
(Recasts, updates prices, market activity; changes byline,
dateline, previously LONDON)
By Carole Vaporan
NEW YORK, Dec 30 (Reuters) - Gold prices declined on
Tuesday as crude oil slipped nearly 2 percent and traders
grabbed profits after the yellow metal reached 11-week peaks in
the previous session.
The weaker dollar limited losses, as did safe-haven
interest in bullion amid worries about Gaza Strip violence.
Spot gold <XAU=> was down at $868.40/871.50 an ounce by
late New York trade from $874.25/$877.25 an ounce on Monday,
when bullion rose to its strongest since Oct. 10 at $889.55.
"Gold has been gaining on the back of the recent
developments in the Middle East that emerged over the weekend,"
said Pradeep Unni, senior analyst at Richcomm Global Services.
"However, gains are unlikely to hold as the technical
momentum is quite weak."
In New York, gold for February delivery <GCG9> finished
$5.30, or 0.61 percent, lower at $870.0 an ounce on the COMEX
division of the New York Mercantile Exchange.
However, the weak pound took spot gold to a record high in
sterling terms of 611.97 pounds, according to Reuters data, up
from 603.72 late on Monday.
Oil prices shed 2 percent, settling below $40 a barrel as
worries about demand in a slowing economy overshadowed fears
about violence in the Middle East. []
Israel hit the Gaza Strip with more air strikes on Tuesday
and warned its military action could last weeks. []
"The situation in the Middle East and Gaza triggered
movements in oil and in gold as well, but given the volumes
actually seen, the reaction was overdone, and a degree of
profit taking has set in," said Simon Weeks, director of
precious metals at the Bank of Nova Scotia.
DOLLAR WEAKNESS
Losses in gold were curbed by dollar weakness, which
typically boosts bullion's appeal as a currency hedge.
The dollar dropped against the euro as weak U.S. house
prices and gloomy consumer confidence data undermined the U.S.
currency. []
If the Middle East violence continues into the new year,
analysts said, investors may renew gold purchases as a safe
haven against geopolitical and inflation risk.
"Increased geopolitical risk could redirect tactical
investment flows back into precious metals," said Standard Bank
analyst Manqoba Madinane.
Interest in gold-backed exchange-traded funds remains firm,
meanwhile. Holdings of the world's largest bullion-backed ETF,
New York's SPDR Gold Trust <GLD> rose nearly 5 tonnes to a
record 780.23 tonnes on Dec. 29, the trust said. []
Among other precious metals, spot silver <XAG=> found
strength and turned up to $10.87/10.97 an ounce in late New
York dealings from $10.75/10.85 an ounce on Monday.
"Given the increased demand for safe-haven asset types, we
anticipate silver will look to test the $11.60-12.40 area
soon," said James Moore, an analyst at TheBullionDesk.com.
Spot platinum <XPT=> reversed course to turn higher. A late
Tuesday quote in New York put the metal at $913.50/$918.50 an
ounce. Spot palladium <XPD=> was quoted at $182.50/187.50 an
ounce.
(Additional reporting by Jan Harvey in London; Editing by
David Gregorio)
