* Firm investment demand outweighs weak jewellery buying
* Euro weakens on euro zone outlook
* Oil prices tumble nearly 10 percent
(Releads, updates prices, adds comment)
By Jan Harvey
LONDON, Jan 20 (Reuters) - Gold swung into the black on
Tuesday, rising more than 2 percent to a one-week high of
$855.75 an ounce, amid market talk of a large order.
Firm investment demand for gold as a haven from risk is
fuelling buying of the precious metal, analysts said.
Spot gold <XAU=> was quoted at $853.00/855.00 an ounce at
1228 GMT, up from $834.55 late on Monday. Earlier it touched a
low of $822.90, down more than 1 percent.
Standard Chartered analyst Daniel Smith said strong investor
flows into products such as exchange-traded funds as investors
sought more secure assets were offsetting weaker jewellery
demand.
"People are slowly building long positions in gold and
commodities more generally," he said.
Gold managed shrugged off early weakness linked to a
strengthening U.S. dollar and weaker oil prices.
The dollar rose to a six-week high against the euro as
traders worried about the outlook for the euro zone economy,
after the European Commission issued a grim forecast for 2009
and Standard and Poor's cut Spain's debt ratings. []
A stronger dollar tends to pressure gold, which is often
bought as an alternative investment to the U.S. currency.
"With financial institutions struggling in Europe and euro
zone government bond spreads widening, weak economic data could
see the euro lose ground against the dollar," noted Standard
Bank analyst Walter de Wet.
In Germany, data showed the Mannheim-based ZEW economic
think tank's monthly poll of economic sentiment rose to -31.0
from -45.2 in December. []
The other main external driver of gold, crude oil, tumbled
almost 10 percent, after Russia and Ukraine agreed on a gas deal
that will help secure supplies to Europe and as traders worried
over the outlook for demand. []
Gold tends to move in line with crude, as it is often used
as a hedge against oil-led inflation. Moves in the oil price are
also an indicator of interest in commodities as an asset class.
Markets are awaiting the inauguration of new U.S. president
Barack Obama. Obama is due to take the oath of office at 1700
GMT. []
JEWELLERY DEMAND WEAK
Overall, fears over the outlook for the global economy and
the financial system are boosting interest in products like
exchange-traded funds -- which issue securities backed by actual
stocks of gold. These are seen as less risky than paper assets.
The world's largest gold-backed ETF, New York's SPDR Gold
Trust, said its holdings are at a record 795.25 tonnes.
However, demand for consumer products such as gold jewellery
is suffering from relatively high gold prices. Jewellery demand
in the world's largest bullion market, India, slowed on Tuesday
as buyers waited for prices to fall. []
Demand may pick up if prices move below 12,500 rupees
locally and $800 on the international markets, Mayank Khemka,
managing director of Khemka International in Delhi, said.
Among other precious metals, platinum <XPT=> weakened a
touch to $942.50/947.50 an ounce, against $948.50 late on
Monday.
Prices have remained in a relatively narrow range below
$1,000 an ounce as traders continue to fret about the demand
outlook as the economy slows.
Platinum has shed some 60 percent of its value since it hit
an all-time high of $2,290 an ounce last March on fears over
falling consumption by carmakers, who account for around half of
global demand for the metal.
Prospects for the economy, and the automotive sector in
particular, "remain very worrying" for platinum, Societe
Generale said in a weekly report.
Palladium <XPD=> was quoted at $181.50/186.50 an ounce
against $183 late on Monday, while silver <XAG=> fell to
$11.29/11.36 an ounce from $11.13.
(Editing by Peter Blackburn)
