* Dubai's avoidance of debt default weighs on dollar
* Traders eye last Fed policy meeting of 2009
* London, New York ETF holdings sank last week
(Updates, adds comment, changes dateline from TOKYO)
By Jan Harvey
LONDON, Dec 14 (Reuters) - Gold prices rose 0.8 percent in
Europe on Monday as news that Dubai had averted a debt default
sharpened appetite for risk, pressuring the dollar and boosting
higher-yielding currencies such as the euro.
Spot gold <XAU=> was bid at $1,122.55 an ounce at 1021 GMT,
against $1,113.85 late in New York on Friday. U.S. gold futures
for February delivery <GCG0> on the COMEX division of the New
York Mercantile Exchange rose $3.70 to $1,123.60 an ounce.
News broke earlier on Monday that Abu Dhabi had given its
debt-laden neighbour Dubai a $10 billion lifeline, heading off a
bond default. []
The news lifted assets perceived as higher risk, such as
stocks and higher-yielding currencies, and pressured the dollar.
"Stock markets have recovered and that indicates that at
least a little more risk-taking is coming back into the market,"
said Peter Fertig, a consultant at Germany's Quantitative
Commodity Research.
"That is usually positive for gold via the U.S. dollar,
because more risk-taking means investors are shifting out of the
safe-haven dollar into risky assets."
The euro rose against the dollar on Monday after Dubai's
announcement. Weakness in the U.S. unit boosts gold's appeal as
an alternative asset, and makes dollar-priced commodities
cheaper for holders of other currencies. []
European shares rose for a third straight session on Monday,
meanwhile, and Asian shares rebounded after the Dubai debt news.
[]
Traders are awaiting comments from the Federal Reserve on
the state of the U.S. economy later this week. The Fed is due to
complete its final policy meeting of the year on Wednesday.
FED EYED
The U.S. central bank is likely to keep interest rates
unchanged near zero, but the focus will be on the accompanying
statement and whether the Fed adds to recent hints that rates
will remain depressed for the foreseeable future.
"Much will depend on the upcoming rhetoric from the Fed and
their choice of wording to manage inflation expectations," said
VTB Capital analyst Andrey Kryuchenkov in a note. "So far, the
U.S. central bank remained quite sceptical of a quick recovery."
"A rate rise is still not expected until 2H10 (second half
2010), but the dollar sentiment could be gradually improving and
this would slow down much expected gains in gold in early 2010,"
he added.
A change in investment trends has also unsettled some
analysts.
Holdings of the world's largest gold-backed exchange-traded
fund were unchanged on Friday but declined 13.7 tonnes
week-on-week, reflecting a 4-percent fall in the price of spot
gold in the same period. []
London's ETF Securities said holdings of its gold-backed
exchange-traded products declined just over 38,000 ounces or 0.5
percent last week.
"A recent switch in investment activity to futures markets
as purchasing of exchange-traded product buying has slowed ...
(suggests) that the risk of liquidation has grown since futures
holders tend to be less committed than ETP buyers," said
Barclays Capital in a weekly note.
Noncommercial net long U.S. gold futures positions hit
record highs recently but a weekly report by the U.S. Commodity
Futures Trading Commission showed they fell to 254,429 lots in
the week to Dec. 8 from 259,064 lots. []
Among other precious metals, silver <XAG=> was bid at $17.23
an ounce against $17.11, tracking gains in gold. Platinum <XPT=>
was at $1,434 an ounce against $1,426, while palladium <XPD=>
was at $363 against $357.50.
(Reporting by Jan Harvey; Editing by Keiron Henderson)
