* Risk appetite weighs on dollar, boosting gold
* Traders report physical demand is trickling back
* Platinum, palladium reach highest in over a year
(Updates, adds comment, changes dateline from TOKYO)
By Jan Harvey
LONDON, Jan 5 (Reuters) - Gold rose in Europe on Tuesday as
the dollar extended the previous session's losses against the
euro, with hopes for a global economic recovery encouraging
investors to favour riskier assets over the greenback.
Gold's strength helped platinum and palladium to rise to
their highest in over a year, boosted by hopes an economic
recovery will lift demand and the launch of new exchange-traded
products backed by the white metals in the United States.
Spot gold <XAU=> hit a three-week high at $1,127.55 and was
bid at $1,124.45 an ounce at 1044 GMT, against $1,121.00 late in
New York on Monday.
"Gold has bounced from the lows on the back of dollar
weakness we've seen in the last few days," said Standard
Chartered analyst Daniel Smith.
But he said he was cautious on the outlook for the metal.
"Our view is that the dollar will be more rangebound than it was
late last year, and that will make any upward rallies in gold
difficult to sustain."
The dollar slipped across the board on Tuesday as investors
poured fresh funds into riskier assets at the start of the year,
and as the market awaited U.S. non-farm payrolls due later in
the week. []
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.
Oil rose towards $82 a barrel, benefiting from rising demand
for heating fuel as the cold snap continued in the United States
and Europe. Gold tends to track crude prices, as the metal can
be bought as a hedge against oil-led inflation. []
On the physical market, gold buying in India, the world's
biggest bullion consumer in 2008, continued for a second day on
Tuesday as a strong rupee made the metal cheaper for domestic
traders, dealers said. []
"There is a little bit of buying interest as the rupee is in
support," said a dealer with a state-run bank in Mumbai.
DEMAND RETURNS
Analysts say there are signs that physical demand is
returning as buyers become acclimatised to higher prices.
"Reports indicate that jewellery demand is picking up at these
levels," said Fairfax analyst John Meyer in a note.
New York's SPDR Gold Trust <GLD> reported sales on the first
trading session of 2010, and its holdings dropped nearly 5
tonnes on Monday from the previous business day. []
U.S. gold futures for February delivery <GCG0> on the COMEX
division of the New York Mercantile Exchange rose $7.00 to
$1,125.30 an ounce.
Silver prices tracked gold higher to a peak of $17.72 an
ounce, their highest since mid-December. They were later at
$17.59 an ounce, against $17.55 late on Monday.
Platinum <XPT=> hit a 16-month high of $1,528 and was at
$1,525 an ounce against $1,521, while palladium <XPD=> reached
its strongest level since July 2008 at $424 and was later at
$422 against $418.
Investors are favouring the metals, used mainly in
autocatalyst manufacturing, in part due to perceptions that a
recovery in economic growth will lift car demand.
Traders will be scrutinising U.S. auto sales data due later
in the session for signs of a recovery.
Many also hope the launch of U.S.-listed ETPs backed by
platinum and palladium will open the metals up to a new wave of
investment.
ETF Securities said late on Monday that a financial firm had
bought 100,000 shares of its proposed U.S. platinum ETP, and
delivery is scheduled by the end of the week. []
(Editing by Sue Thomas)
