* Coincident dollar strength bullish for gold
* SPDR holdings hit record 1,209.499 T as of May 12.
* Coming up: U.S. weekly jobless claims at 1230 GMT
(Adds comment, updates prices)
By Pratima Desai
LONDON, May 13 (Reuters) - Gold steadied on Thursday, but
analysts expect the precious metal to extend gains to new
records over coming days as waves of investor money come
flooding into the market looking for safety.
Spot gold <XAU=> was bid at $1,233.95 a troy ounce at 1135
GMT from $1,236.35 an ounce late in New York on Wednesday, when
it hit a record $1,248.15 on fears that a $1 trillion European
rescue package will not solve the euro zone debt crisis.
However, news the European Central Bank would buy euro zone
government bonds has dampened gold market sentiment as it cuts
the chances of sovereign default in the region. []
But analysts say risk aversion still dominates market
psychology and the fact that gold has moved up alongside the
dollar <EUR=> <.DXY> only reinforces investor bias towards the
precious metal.
"Predicting what could happen next is extremely difficult,
but the indications are bullish. We've seen this kind of
environment before," said Dan Brebner, analyst at Deutsche Bank.
"What is bullish for gold is the coincident dollar strength.
Similar to that in late 2008 and early 2009 after Lehman's
bankruptcy -- a period of heightened risk aversion. Over the
next 6 months we could see a 25-30 percent increase in gold."
Gold prices are up more than 10 percent since the start of
April compared with less than 2 percent in the first quarter.
The euro fell to a one-week low as looming fiscal tightening
requirements in the euro zone dominated sentiment. []
Traditionally gold moves in the opposite direction to the
dollar, which when it rises makes commodities more expensive for
holders of other currencies.
COMPETING CURRENCIES
Strong investor interest in gold can be seen in the holdings
of the world's largest gold-backed exchange-traded fund, SPDR
Gold Trust <GLD>, which said its holdings stood at a record high
of 1,209.499 tonnes as of May 12.
"Demand for gold was evident in most forms, with retail
sales of coins and bullion surging, exchange-traded gold funds
drawing a net flow ... and open interest in U.S. futures nearing
a record," ANZ said in a note.
U.S. gold futures <GCM0> hit a record peak of $1,249.2 an
ounce on Wednesday. It was last at $1,234.2 an ounce, down about
$9 from the previous session.
Investors use gold as a hedge against financial and
political turbulence and as a store of value during times of
high inflation, which erodes wealth.
"Gold is the ultimate store of value and the best hedge
against sovereign or inflation risks," VTB Capital said in a
note. "The rush of investors into gold is unlikely to abate
anytime soon, especially now that traditionally hawkish Eurozone
central bankers might have to engage in quantitative easing."
Loose monetary policy, focus on growth and some concern that
governments could use inflation to devalue their debt is another
reason cited for gold's popularity. []
Fears that governments around the world will resort to
competitive devaluations of their currencies to boost economic
activity is another plus for gold.
"In the kind of environment where countries compete using
their currencies, gold will of course appreciate," Brebner said.
Spot silver <XAG=> was at $19.44 an ounce from $19.48,
platinum <XPT=> at $1,718.00 from $1,736.50 and palladium <XPD=>
at $538 from $540.
(Editing by James Jukwey)
