* North and South Korea exchange artillery fire
* Gold in euros may outperform dollar-denominated bullion
* Coming up: U.S. FOMC Nov 2-3 meeting minutes; 1900 GMT
(Updates prices, adds quote)
By Amanda Cooper and Elizabeth Fullerton
LONDON, Nov 23 (Reuters) - Gold neared two-week highs on
Tuesday as an artillery clash between North and South Korea and
Europe's debt crisis prompted safe haven buying and eroded the
metal's traditional inverse link with the U.S. dollar.
The U.S. currency reaped the benefit from the euro's decline,
rising by over 1 percent against a basket of major currencies
<.DXY>, while gold <XAU=> rose by as much as 1 percent earlier
in the day to a session high of $1,379.95, before retreating to
show a 0.7 percent gain on the day at $1,375.00.
U.S. gold futures <GCZ0> rose some 1 percent to $1,372.7.
Gold's negative correlation to the dollar softened for the
first time since last Thursday, echoing the events of May this
year, when Greece asked for financial aid and bullion's relation
to gold turned strongly positive as investors shed their
holdings of euros.
Natixis analyst Nic Brown felt that any boost for gold from
events in Korea and even in the European Union were likely to
play second fiddle to bigger picture issues like the dollar and
global measures against inflation.
"I'm not sure the gold market is being pushed around by
European credit concerns in the same way that it was earlier in
the year," he said.
"It feels to me at the minute that it is more about events
in the U.S. - quantitative easing, the strength of the dollar
and also rising inflation in some of the devleoping countries
around the world."
Events on the Korean peninsula and Europe triggered a flight
to quality by investors, as reflected by a rise in government
bond prices and a pickup in the Swiss franc -- another perceived
safe-haven asset -- against the euro <EURCHF=>.
KOREAS IN FOCUS
North Korea fired scores of artillery shells at a South
Korean island on Tuesday, killing two soldiers in a sharp
escalation of hostilities between the two nations. []
In Europe, the euro <EUR=> came under pressure as fears grew
that Ireland's debt crisis could spread to other weaker members
of the euro zone such as Portugal and Spain and amid signs the
Irish government will have trouble passing a crucial austerity
budget.
German Chancellor Angela Merkel said on Tuesday Ireland's
crisis was different to Greece's but just as worrying and the
euro was in an "exceptionally serious" situation.
Gold priced in euros <XAUEUR=R> was at 1,025.89 euros an
ounce, up over 2 percent on the day, having broken through the
1,000-euro mark on Monday for the first time in a week.
Traders in London also cited strong buying of gold futures
related to the expiry of COMEX December options on Tuesday.
"There were some big strikes around $1,370 and that meant
that up until 2.30 p.m. there was plenty of selling in the
market around those levels, so that was putting a bit of a cap
on it," one trader at a European bank said.
"We've now gone through that option expiry, it looks like
the selling's disappeared and we could have a chance to move
higher this afternoon," the trader added.
Until this week, gold has struggled to overcome the strength
in the U.S. dollar, especially following upbeat manufacturing
and jobless data last week that suggested the economy was
recovering faster than expected.
Speculators in New York have cut their exposure to gold
futures by 4 million ounces in the last month and holdings of
gold in the world's largest bullion-backed exchange-traded fund,
the SPDR Gold Trust <GLD>, have fallen by 1.5 percent.
[]
With the U.S. Thanksgiving holiday around the corner,
investors are watching for a batch of data, as well as minutes
from the Federal Reserve's meeting on Nov 2-3, where the Fed
decided to launch its $600 billion bond purchase programme.
Spot silver <XAG=> fell by 1.5 percent to $27.45 an ounce,
as the precious metals complex remained under presssure,
although holdings of metal in the iShares Silver Trust <SLV>,
the world's largest physically-backed exchange-traded fund, hit
a record high. []
Platinum <XPT=> fell by 1 percent to $1,643.74 an ounce,
while palladium <XPD=> was down by 2 percent at $677.22.
(Editing by Keiron Henderson)
