* Euro swings into positive territory vs the dollar
* Physical demand back after prices slip 2.2 pct week/week
* Gold's correlation to rising U.S. bond yields picks up
(Updates prices)
By Jan Harvey
LONDON, Dec 13 (Reuters) - Gold extended gains above $1,390
an ounce in Europe on Monday as the dollar surrendered early
gains against the euro, and as last week's price dip of more
than 2 percent brought physical buyers back to the market.
Concern over the outlook for the euro zone is also lending
support to the precious metal, which is often seen as a safe
store of value, analysts said.
Spot gold <XAU=> was bid at $1,393.35 an ounce at 1225 GMT,
against $1,383.15 late in New York on Friday. U.S. gold futures
for December delivery <GCZ0> rose $7.50 an ounce to $1,391.80.
The precious metal rose to a record high at $1,430.95 an
ounce last Tuesday but quickly surrendered gains to end the week
down 2.2 percent. Its retreat has awoken fresh appetite from the
metal among jewellers and physical investors, analysts said.
"Bullish momentum is still very much (intact), with reports
of impressive physical demand from key consuming countries,"
said Pradeep Unni, senior analyst at Richcomm Global Services.
The precious metal extended early gains as the euro moved
back into positive territory against the dollar, rising 0.3
percent after five straight sessions of losses. []
Weakness in the U.S. unit usually lifts gold, as it raises
the metal's appeal as an alternative asset and makes dollar
priced commodities cheaper for holders of other currencies.
Sharper risk appetite after upbeat U.S. and Chinese economic
data lifted equity markets and industrial commodities like
copper, which touched a record high, on Monday. [] []
U.S. Treasuries prices fell sharply in Europe on Monday,
driving benchmark 10-year yields to six-month peaks, as
investors sold the bonds in anticipation of higher growth and
deeper deficits in the United States. []
"Gold has been highly correlated to the direction of U.S.
10-year Treasury yields over the past week," said UBS analyst
Edel Tully. "The direction of Treasury yields will continue to
influence gold's direction this week."
"Rising bond yields are not a typical breeding ground for a
higher gold price, but the recent strength of that correlation
is perhaps exaggerated by investors taking the opportunity to
bank profits before year-end," she added.
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
For a graphic showing the correlation between gold and
10-year Treasury yields, click:
http://graphics.thomsonreuters.com/gfx1/AC_20101312094022.jpg
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EURO ZONE CONCERNS SUPPORT
Gold also remains well supported near $1,400 an ounce by
ongoing concerns over the health of the euro zone.
A meeting of European Union leaders later this week is set
to pave the way for private sector investors to shoulder losses
in case of a sovereign debt restructuring, but delegates remain
divided on more concrete steps to shore up the region.
"Lingering sovereign debt concerns in Europe and rising
inflationary pressures in China are expected to underpin
continued investment demand," Morgan Stanley said in a note.
On the investment side of the gold market, holdings of the
world's largest gold-backed exchange-traded fund, New York's
SPDR Gold Trust <GLD>, declined by a further 3.95 tonnes on
Friday. []
The trust saw outflows of 8.2 tonnes of metal last week, or
0.6 percent of its total gold holdings, its biggest one-week
outflow since early October. It is still the world's
sixth-largest holder of gold, ahead of Switzerland and Japan.
Elsewhere, silver <XAG=> was at $29.45 an ounce against
$28.55, platinum <XPT=> was at $1,691.24 an ounce versus
$1,665.10, and palladium <XPD=> was at $749.97 versus $728.28.
(Reporting by Jan Harvey; Editing by Alison Birrane)
