* 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 prices)
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 limited 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, a senior analyst at Richcomm Global Services
in Dubai, said fresh highs in gold were likely this year, with
an initial target seen at $1,455-$1,480, after trade in the
metal was becalmed over the Christmas holidays.
"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 $1,420.10 an ounce at 1230 GMT,
against $1,419.45 late in New York on Friday. The precious metal
had 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 50
cents an ounce to $1,420.90.
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 later trade.
EURO SLIPS
The euro fell 0.5 percent <EUR=> against the dollar early in
the day, 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=> hit its highest
since 1980 at $31.17 an ounce against $30.86 as investors
continued to pick up the metal as a cheaper proxy for gold.
"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
(exchange-traded funds), 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 $1,774.65 an ounce against $1,767.50,
and palladium <XPD=> at $799.75 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 Jane Baird)
