* Concerns linger over euro zone debt after S&P downgrades
* U.S. Fed repeats pledge to keep interest rates on hold
* London palladium ETP reports outflow on Wednesday
(Updates, adds comment, changes dateline from SINGAPORE)
By Jan Harvey
LONDON, April 29 (Reuters) - Gold rose towards $1,170 an
ounce in Europe on Thursday as concerns over the euro zone's
fiscal health after ratings downgrades of Greece, Spain and
Portugal fuelled buying of the metal as a haven from risk.
Gold priced in euros <XAUEUR=R>, sterling <XAUGBP=R> and
Swiss francs <XAUCHF=R> steadied after hitting record highs on
Wednesday as investors sold European currencies and bought gold.
Spot gold <XAU=> was bid at $1,169.25 an ounce at 0959 GMT,
against $1,164.45 late in New York on Wednesday. U.S. gold
futures for June delivery <GCM0> on the COMEX division of the
New York Mercantile Exchange eased 90 cents to $1,170.80.
"With the contagion of Greece, Portugal and Spain coming
through, it has given a perfect backdrop for those who view gold
as a safe haven," said RBS analyst Nick Moore. "We have had a
record gold price in euros, sterling, and Swiss francs."
However, with gold's rise driven solely by sovereign risk
fears rather than fundamental factors, the metal is unlikely to
justify these levels long-term, he said.
"The European situation will probably rumble on for weeks
and months, but further out we know interest rates are going up
and the opportunity costs for holding gold will become more
expensive," he said. "Once the markets confidence returns, I
think gold will be found wanting."
Gold hit 2010 highs at $1,174.18 an ounce on Wednesday after
Standard & Poor's cut its credit ratings on Spain, a day after
downgrading its ratings on Greece and Portugal.
Assets seen as higher risk such as the euro, stocks and
commodities were sold on the news, but recovered early on
Thursday amid reports that a planned aid deal for Greece would
be bigger than initially thought.
A Federal Reserve statement giving a more upbeat view of the
U.S. economy at the conclusion of its two-day rate setting
committee meeting on Wednesday also boosted risk sentiment.
PLEDGE MAINTAINED
The Fed maintained its pledge to keep interest rates low for
an "extended period" and slightly upgraded some of its economic
forecasts. []
The euro steadied after hitting a one-year low the day
before, European stocks opened in positive territory, and oil
prices rose 0.5 percent. But gold remained supported, with few
believing the euro zone is out of the woods. [] [] []
"The president of the European Council Herman Van Rompuy
promised Greece would not default," said HSBC in a note. "He was
followed by Jean-Claude Trichet, president of the European
Central Bank, who issued an almost carbon copy comment."
"The rally in gold prices implies the financial markets do
not entirely share their conviction. For as long as the markets
are wary of euro sovereign debt, gold is likely to be well-bid."
Investment interest in gold was firm, with holdings of the
world's largest gold exchange-traded fund, the SPDR Gold Trust
<GLD>, hitting a record 1,152.9 tonnes on Wednesday. []
But high prices weighed on jewellery demand in major
consumer India, with traders taking to the sidelines for a third
day as prices traded above the 17,000-rupee mark, dealers said.
[]
Among other precious metals, silver <XAG=> was at $18.10 an
ounce against $18.06, platinum <XPT=> at $1,710.50 an ounce
against $1,707, and palladium <XPD=> at $541 against $538.50.
Holdings of ETF Securities' London and Zurich palladium ETPs
saw an outflow of nearly 7,000 ounces or 1.1 percent as of
Wednesday. Investment in products like ETPs has been an
important souce of demand for the metal this year.
"Now that short-term sentiment towards platinum and
palladium has been clouded by risk aversion stemming from the
Eurozone's debt crisis, ETFs are potentially at risk of
liquidation," said UBS analyst Edel Tully in a note.
(Editing by Sue Thomas)
