* Gold poised for fresh gains as euro zone debt fears rankle
* Silver, palladium reach multi-year highs
* Coming up: U.S. construction, ISM data at 1500 GMT
(Updates throughout, changes dateline, pvs SINGAPORE)
By Jan Harvey
LONDON, Jan 3 (Reuters) - Gold rose above $1,420 an ounce in
Europe on Monday, within 1 percent of its record high, and
silver and palladium hit multi-year peaks, driven by pent-up
demand on the first trading day of 2011.
While a firm dollar is limiting gains, expectations for more
bad news on euro zone debt, concerns over potential inflation in
developing economies and an increased focus on the U.S. deficit
are set to maintain surging demand for gold, analysts said.
Pradeep Unni, senior analyst at Richcomm Global Services in
Dubai, said fresh highs in gold were "likely" this year after
the metal was becalmed over the Christmas holidays, with an
initial target seen at $1,455-$1,480.
"The fundamentals are driving the price and those
fundamentals remain `fear' driven," he said.
"Gold (steps) into the New Year with all its current
fundamentals intact.... sovereign debt risk, macro uncertainty,
concerns over currency stability, medium-term inflation fears as
the U.S. Federal Reserve implements Quantitative Easing II,
geopolitical tensions and low interest rates."
Spot gold <XAU=> was bid at $1,420.40 an ounce at 1035 GMT,
against $1,419.45 late in New York on Friday. The precious metal
hit a record $1,430.95 an ounce in December. European trade is
expected to remain quiet, with London still on holiday.
U.S. gold futures for February delivery <GCG1> eased 40
cents an ounce to $1,421.00.
While gold was little changed in early trade on Monday, U.S.
data due later in the session -- November construction spending
and December ISM non-manufacturing numbers at 1500 GMT -- may
influence trade later in the session.
EURO SLIPS
The euro fell 0.5 percent <EUR=> against the dollar early on
the first trading day of 2011, reversing year-end gains on
persistent concerns about euro zone debt. []
These worries can work both ways for gold. A weaker euro,
and consequently stronger dollar, typically pressures gold
prices, but concerns over sovereign debt are set to support
demand for the metal as a haven from risk.
"(We look) for the gold market to start out 2011 on a strong
note," said MF Global in an end-of-year report. "Support may
come from a resumption of investment inflows and a renewed focus
on European sovereign debt issues.
"Background support will be offered by quantitative ease,
and improved (jewellery) demand," it added. "Negative factors
will linger in the background as well, but should be shelved in
the midst of fresh investment this week."
The strong inverse relationship between gold and the dollar
weakened to such an extent last year that gold prices managed to
rise nearly 30 percent at the same time that the dollar rose
more than 6.5 percent against the euro.
Among other precious metals, silver <XAG=> rose to its
highest since 1980 at $31.06 an ounce, as investors continued to
pick up the metal as a cheaper proxy for gold. It was later bid
at $31.04 an ounce against $30.86.
"At over $31 a troy ounce at the beginning of the new year,
silver... continues its high-altitude flight," said Commerzbank
in a note.
"Ongoing strong demand, e.g. for silver ETFs, could push the
price up further. Alone the world's largest silver ETF, iShares
Silver Trust, increased its holdings last year by 15 percent or
1,429 to 10,922 tons."
Platinum <XPT=> was at $1,774.24 an ounce against $1,767.50
and palladium <XPD=> at $800.03 against $799.50, having earlier
touched its highest since March 2001 at $803 an ounce.
Palladium and silver were among the best-performing precious
metals last year, up 97 percent and 83 percent respectively.
Autocatalyst metal palladium is seen as the surer bet for 2011,
however, on expectations its market balance will tighten.
(Reporting by Jan Harvey; Editing by Alison Birrane)
