* Dollar slips from one-week high versus euro
* Equities slide on fears over rising govt debt yields
* Platinum, palladium pressured by auto sector outlook
(Updates prices)
By Jan Harvey
LONDON, May 28 (Reuters) - Gold firmed in Europe on
Thursday, reversing earlier losses, as the dollar weakened
against the euro, sparking buying of the metal as an alternative
asset.
Spot gold <XAU=> was bid at $951.30 an ounce at 1148 GMT,
against $948.10 an ounce late in New York on Wednesday.
"The correlation between the dollar and gold is pretty
strong at the moment," said Commerzbank analyst Carsten Fritsch.
He said in the short term the bank's currency analysts believe
the dollar could bottom out and move higher, weighing on gold.
The euro firmed against the dollar on Thursday, reversing
earlier losses that saw the single currency touch a one-week low
of $1.3793 earlier in the session. The U.S. currency
strengthened, however, against the yen. []
Gold has recently re-established its close negative
correlation with the U.S. currency after the relationship
weakened earlier this year, as risk aversion took the driving
seat in both the bullion and currency markets. []
Weakness in equity markets is still helping gold hold above
key support at $940 an ounce. Global stocks fell from 2009 highs
as concerns grew rising U.S. debt yields could push up borrowing
costs and arrest a recovery. []
Economists are becoming increasingly worried about the debt
burden taken on by countries looking to spend their way out of
recession. []
"Even the all-mighty Fed cannot stop longer-term yields from
rising," said VTB Capital in a note. "The deteriorating
financial position of the United States spurs quality concerns
while the Fed printing press fuels inflation expectations."
INFLATION PROSPECTS
The prospect of rising inflation in the longer term is
likely to support gold, a key hedge against rising prices.
Investor demand for the metal remains relatively soft after
the heavy buying seen in early 2009. Holdings of the main gold
exchange-traded fund, the SPDR Gold Trust <GLD>, were unchanged,
albeit near record levels, for a third straight session.
Holdings of a much smaller ETF operated by Swiss bank Julius
Baer <BAER.VX> are expected to rise to a record 1.599 million
ounces by Friday, however. []
In India, the world's biggest bullion buyer, demand was firm
despite high prices as the wedding season got underway. During
the season, which lasts until June, parents give gold jewellery
as a wedding gift for financial security. []
Silver <XAG=> tracked gold higher as investors bought it as
a cheaper proxy for the yellow metal, and was at $14.82 an ounce
against $14.72.
Among other precious metals, platinum <XPT=> was quoted at
$1,128 an ounce against $1,131.50 late in New York on Wednesday,
while palladium <XPD=> was at $224.50 against $222.
Platinum is being pressured by fears over the demand
outlook, especially from the ailing car sector, which typically
consumes half of the world's annual output of the white metal.
General Motors <GM.N> failed to win approval for a crucial
bond exchange proposal on Wednesday, bringing it one step closer
to bankruptcy. EU ministers are meeting Friday to discuss the
sale of GM unit Opel. []
"GM seems set for bankruptcy and this is keeping investors
cautious on platinum and palladium, hence the currently low
platinum/gold ratio of 1.19," said UBS analyst John Reade in a
note.
"We are looking for a resolution of the GM crisis as a
trigger to tactically buy platinum, either outright or against
gold."
(Reporting by Jan Harvey; Editing by Peter Blackburn)
