* Equities, euro extend gains as risk appetite improves
* SPDR gold ETF holdings steady at record 1,306.137 T
* Palladium rises 3 pct, further gains seen before year-end
(Updates prices)
By Jan Harvey
LONDON, June 14 (Reuters) - Gold firmed in Europe on Monday
as expectations that government measures to address elevated
sovereign debt levels may ultimately prove inflationary, and as
investors bet interest rates will stay low.
Gains were capped, however, by a return of some appetite for
assets seen as higher risk, such as stocks and the euro, at
gold's expense, after a spate of well-received economic data
helped allay fears for a double-dip recession.
Spot gold <XAU=> was bid at $1,226.60 an ounce at 1114 GMT,
against $1,225.40 late in New York on Friday. U.S. gold futures
for August delivery <GCQ0> fell $2.00 an ounce to $1,228.20.
"There are a lot of people who take a longer-term view,"
said Standard Bank analyst Walter de Wet. "Interest rates are
low, so for the next six to 12 months, conditions still favour
higher gold prices irrespectively of equity markets rallying."
Commodities were higher across the board on Monday, with
base metals like copper and aluminium rising, oil prices
climbing nearly 2 percent, and cocoa, sugar, coffee and wheat
all stronger. [] [] []
"There are obviously people who buy gold as a safe haven
asset while risk aversion is high, but there are also people out
there who buy gold as a commodity," de Wet added. "When there is
increased risk appetite, they buy a basket of commodities, which
might include gold."
World stocks headed for a fourth session of gains due to
optimism over the global growth outlook, with European equities
reaching a four-week high. [] []
The euro <EUR=> also extended gains as appetite for assets
seen as higher risk improved. The single currency recorded its
biggest weekly gain since September last week. []
A stronger euro, and consequently weaker dollar, would in
normal circumstances benefit gold, though in recent months the
usual relationship has inverted as both bullion and the U.S.
currency benefit from rising risk aversion.
GOLD ETF HOLDINGS AT RECORD
Investment interest pushed holdings of the world's largest
gold-backed exchange-traded fund, New York's SPDR Gold Trust
<GLD>, to a record 1,306.137 tonnes on Friday. []
Investors still have an interest in holding gold in the
medium- to long-term to protect against potentially inflationary
government measures to service debt, such as quantitative
easing.
In a note on Monday, UBS said its economists have pushed
back their expectations for U.S. and euro zone rate hikes. Low
interest rates are positive for gold, as they cut the
opportunity cost of holding non-interest bearing assets.
"While we certainly see inflationary threats ahead through
the potential for the debt monetisation route, that time horizon
is some distance in the future," UBS said in a note.
"Instead, the reality this year of rising interest rates in
the U.S., in the absence of rising inflation or indeed
expectations, would not have been gold supportive. As such, our
forecast for a looser monetary policy environment provides a
positive backdrop to gold over the coming months."
Physical demand from gold's usual chief consumers, like
India and the Middle East, has been dented by higher prices.
But in a Reuters interview, the vice chairman of the Gem and
Jewellery Export Promotion Council, Rajiv Jain, said Indian gem
and jewellery export sales are expected to rise by at least 7-8
percent in 2011. []
Other precious metals rose in line with other commodities,
with palladium the biggest climber with gains of more than 3
percent. Palladium <XPD=> was at $452.50 an ounce against $439,
while platinum <XPT=> was at $1,549.50 against $1,539.50.
Silver <XAG=> was bid at $18.41 an ounce against $18.18.
(Reporting by Jan Harvey; Editing by Alison Birrane)
