* Dubai highlights higher sovereign risk
* Central bank buying to buoy sentiment
(Recasts, updates prices and comments)
By Pratima Desai
LONDON, Nov 27 (Reuters) - Gold rallied from a one-week low
on Friday, helped by the dollar cutting gains as world leaders
played down the possibility of a Dubai debt default, with
investors betting the metal's unique appeal would stay intact.
Spot gold <XAU=> cut losses to around 1.5 percent and traded
at $1,174.65 an ounce by 1627 GMT, after hitting a low of
$1,136.80 a troy ounce, the lowest since Nov. 20.
It was still down from 1,192.60 quoted late on Thursday,
when the precious metal hit $1,194.90 -- a record high.
"We've dropped around $60 today, which has given the people
who haven't been able to join the first rally a chance to enter
the market," said Ole Hansen, senior manager at Saxo Bank.
"The rally for now could be a little bit subdued as we will
run into profit taking as we go into December. But, the strong
way it's coming back up today could bode fresh highs next week."
Dubai said on Wednesday two flagship firms planned to delay
repaying billions of dollars in debt. State-backed Dubai World
has $59 billion of liabilities -- a big chunk of the emirate's
total debt of $80 billion. []
That has raised the spectre of default and triggered a
sell-off of risky assets such as commodities and stocks.
For a graphic on risk assets please see:
http://graphics.thomsonreuters.com/119/GLB_RSKA1109.gif
"The events in Dubai highlight the elevated level
of sovereign risk heading into next year, the potential pockets
of dollar strength that this can deliver," Deutsche Bank said in
a research note.
Gold, a traditional safe haven, has also been sold because
the higher dollar makes the precious metal more expensive for
holders of other currencies.
But the dollar trimmed its gains against a basket of
currencies and was up only around 0.2 percent, compared with 0.8
percent earlier in the day. []
"Longer term, gold will come back that much stronger and no
doubt will make new highs," Simon Weeks, director of precious
metals at Bank of Nova Scotia, but added the near-term trend was
more on the downside.
CENTRAL BANKS BUOY
Analysts said some of gold's resilience stemmed from
expectations of gold purchases by central banks in emerging
markets.
Earlier this week the International Monetary Fund said it
had sold 10 tonnes of gold to the Central Bank of Sri Lanka,
adding the sale was part of the 403.3 tonnes approved by its
executive board in September. []
The IMF has already sold 202 tonnes to the Reserve Bank of
India and the Bank of Mauritius.
"The central bank story is the one that has driven gold
higher, not just the dollar story," said Daniel Major, a metals
analyst at RBS Global Banking & Markets.
Earlier this week the IMF declined to comment on a newspaper
report which suggested India could buy more gold from the fund.
[] []
Also driving gold are purchases by investors looking for a
hedge against inflation that could be triggered by the vast
amounts of money being pumped into the global economy by central
banks and governments around the world.
That can be seen in the world's largest gold-backed
exchange-traded fund, SPDR Gold Trust <GLD>, holding 1,127.860
tonnes as of November 25 and within touching distance of the
record 1,134.03 tonnes seen on June 1. []
Other precious metals also bounced from lows. Silver <XAG=>
was at $18.28 an ounce after hitting a two-week low of $17.66 an
ounce, while platinum <XPT=> and palladium <XPD=> touched
one-week lows of $1,418.50 and $351 an ounce respectively.
Platinum was at $1,445 an ounce from $1,452 and palladium at
$365.50 an ounce from $368.
(Additional reporting by Humeyra Pamuk and Veronica Brown,
Editing by Anthony Barker)
((pratima.desai@thomsonreuters.com; +44 207 542 5113))
