* Dollar extends losses as U.S. CPI falls less than expected
* SPDR, iShares ETFs reach record levels
(Releads, updates prices, adds comment)
By Jan Harvey
LONDON, Jan 16 (Reuters) - Gold rose 2 percent on Friday as
the dollar extended losses against the euro after a smaller than
expected fall in the U.S. consumer price index, with appetite
for bullion as a haven from risk also buoying prices.
Spot gold <XAU=> was quoted at $837.40/838.80 an ounce at
1408 GMT, up from $817.45 late in New York on Thursday. Earlier
it touched a session high of $838.30.
U.S. gold for February delivery <GCG9> on the COMEX division
of the New York Mercantile Exchange was up $30.20 at $837.50.
"The fall in headline CPI was a bit less than the market had
priced in, and core CPI was unchanged, so that was supportive of
gold," said Dresdner Kleinwort consultant Peter Fertig.
A recovery in the euro and the equity markets is supporting
the precious metal, he added.
The dollar extended losses versus the euro after a
government report showed a continued drop in U.S. consumer
prices, helping revive appetite for other currencies.
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A softer dollar tends to benefit gold, which is often bought
as an alternative asset to the U.S. currency.
In addition to the weak dollar, interest in bullion as a
haven from risk is also lifting gold, analysts say.
"Risk aversion is high," said Commerzbank analyst Eugen
Weinberg. "People are looking at gold right now as a real hedge
against everything, an alternative asset."
Weakness in the banking sector, which saw Bank of America
and Citigroup report large fourth quarter losses earlier on
Friday, is increasing investor jitters and further supporting
gold, he added.
"The more problems we see in the banking sector and the
financial sector in general, the more attractive gold as a hedge
against such risk will be," he said.
GOLD, SILVER ETFs HIT RECORD
Investment demand for physical gold remains strong as
turmoil in the financial markets and fears over the outlook for
the global economy boost bullion's appeal.
The world's largest gold-backed exchange-traded fund, New
York's SPDR Gold Trust, said its holdings rose to a fresh record
on Thursday of 795.25 tonnes. []
Demand for physical gold from ETFs has been a major factor
supporting prices in recent years. In December, SPDR overtook
the Bank of Japan as the world's seventh largest holder of gold.
The world's largest silver-backed ETF, the iShares Silver
Trust, said its holdings climbed 1 percent to a record 7,143.27
tonnes on January 14. []
Strength in demand for silver bullion from ETFs is helping
to outweigh falling demand in other areas, analysts said.
"From an industrial perspective demand is quite weak, but I
don't think people are focusing on that as much as where the
dollar is likely to go, and where gold is likely to go," said
Standard Chartered analyst Daniel Smith.
Spot silver <XAG=> tracked gold higher to $11.00/11.08 an
ounce from $10.58.
Among other precious metals, platinum and palladium were
steady, benefiting from gold's strength and the dollar's
weakness but picking up little fresh momentum as traders
continue to worry about the outlook for demand.
Spot platinum <XPT=> edged up to $943.50/953.50 an ounce
from $922.50 an ounce in New York late on Thursday, while spot
palladium <XPD=> was at $184/189 an ounce from $177.
(Reporting by Jan Harvey; Editing by Peter Blackburn)
