* SPDR ETF holdings at all-time high above 850 tonnes
* China's gold production hits record 282 tonnes
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By Jan Harvey
LONDON, Feb 3 (Reuters) - Gold turned higher in Europe on
Tuesday as interest in assets such as bullion-backed
exchange-traded funds as a safe store of value reversed the
previous session's near 3 percent slide.
A turnaround in the dollar versus the euro, typically a key
driver of gold, also helped support the precious metal. The U.S.
currency weakened against the euro, reversing early gains and
boosting gold's appeal as a currency hedge. []
At 1449 GMT, gold <XAU=> was quoted at $908.90/910.90 an
ounce, up from $903.15 late in New York on Monday. Earlier it
touched a low of $894.30.
U.S. gold futures for April <GCJ9> delivery on the COMEX
division of the New York Mercantile Exchange rose $1 to $908.20
an ounce.
"Gold is a barometer for fear on the markets," Commerzbank
analyst Eugen Weinberg said.
"If the equity markets are down, if sentiment is becoming
more cautious and people are worried about the health of the
financial system, gold prices will rise despite the U.S.
dollar."
U.S. equities turned lower after briefly rising at the open,
while in Europe, shares slipped as banking stocks gave up some
of their recent gains as concerns over their balance sheets
persisted. []
Oil prices steadied after sliding almost 4 percent on
Monday. []
Interest in smaller investment products such as gold coins
and bars and physically-backed exchange-traded funds (ETF) has
grown as rising volatility in other asset prices boosts
bullion's appeal as a safe store of value.
Bullion fell $25 an ounce on Monday as investors took
profits after the previous week's more than 3 percent rally,
hurt by fears over weak jewellery demand in India and the Middle
East.
But demand for gold as a haven from risk has limited losses.
The world's largest gold-backed ETF, the SPDR Gold Trust,
said holdings rose 9.78 tonnes to a record 853.37 tonnes as of
Feb 2, up more than 9 percent in the past month. []
"When U.S. ETF investors are adding to holdings it often
shows up as gold rallying as the equity market opens, as happened
yesterday," UBS strategist John Reade said in a note.
"In our view, rapidly growing ETF holdings are a clear sign
of safe haven buying of gold," he added. "This is the dominant
factor in the gold market at present."
WEAK
However gold's underlying fundamentals are weak, Weinberg
said, with China, the world's largest gold producer, and Russia
both reporting rising production while jewellery demand is soft.
China's production hit a record 282 tonnes in 2008, the
China Gold Association said, up 4.3 percent from 2007.
[]
High prices are scaring off jewellery buyers, who account
for almost 70 percent of global demand for gold. The volume of
gold jewellery sales in Abu Dhabi fell 70 percent in January due
to rising prices. []
"Basically, there's not much interest from the jewellery
sector and there's profit taking as well as light selling in
Asia," a dealer in Hong Kong said.
"But we can still see bargain hunting at lower levels.
That's why we also see a rebound, which is driven by bargain
hunters," the dealer said, referring to a fall to an intraday
low of $895.60 an ounce.
Among other precious metals, spot silver <XAG=> was at
$12.28/12.34 an ounce, against $12.37 late on Monday.
Interest in silver-backed ETFs is also strong, with holdings
of the largest, iShares Silver Trust <SLV.A>, at record levels.
Platinum <XPT=> was last trading at $963.50/968.50 from
$970.00 while palladium <XPD=> was at $189.50/194.50 from
$193.50.
Investors are awaiting U.S. car sales data later in the
session for direction. Falling demand for platinum and palladium
from carmakers, the major consumers of the metals, has put
significant pressure on prices over the last year.
(Reporting by Jan Harvey; Editing by William Hardy)
