* SPDR gold ETF holdings hit record 1,313.135 T
* Coming up: U.S. Fed interest rates announcement, 1815 GMT
(Updates prices)
By Jan Harvey
LONDON, June 23 (Reuters) - Gold prices rose above $1,245 an
ounce in Europe on Wednesday due to weakness in the dollar and a
second day of stock market declines, which led investors to seek
a haven from risk.
Investment flows lifted holdings of the world's largest
gold-backed exchange-traded fund, New York's SPDR Gold Trust
<GLD>, to a new record high at 1,313.135 tonnes on Tuesday.
Spot gold <XAU=> was bid at $1,245.65 an ounce at 1124 GMT,
against $1,239.00 late in New York on Tuesday. U.S. gold futures
for August delivery <GCQ0> rose $5.80 an ounce to $1,246.70.
"Overall it is holding up pretty well, and renewed risk
adversity will ensure the market stays bid, but it looks a bit
tired so there is a fear that it may need to correct more in
order to attract new buyers," said Saxo Bank senior manager Ole
Hansen.
European shares moved further away from a recent seven-week
high as investors fretted about global economic growth after an
unexpected drop in U.S. homes sales on Tuesday. []
The slip followed a decline in Asian stocks overnight and a
1 percent drop in U.S. stocks on Tuesday. []
On the currency markets, the euro climbed against the
dollar, while the U.S. currency dipped 0.2 percent against a
basket of six other currencies. []
Weakness in the U.S. unit typically lifts gold's appeal as
an alternative asset and makes dollar-priced commodities cheaper
for holders of other currencies.
The inverse relationship between the dollar and gold is
becoming reestablished after weakening earlier in the year when
both assets benefited from risk aversion.
"We are entering into the low liquidity time of year and
markets will be looking for any kind of direction," said Hansen.
"This will probably play into the hands of the old
relationship as a lack of other news may entice day traders to
focus on the dollar relationship."
FED STATEMENT EYED
The markets are now awaiting an announcement on interest
rates from the U.S. Federal Reserve at 1815 GMT. The bank is
expected to keep rates on hold at a record low 0-0.25 percent.
"The accompanying statement by the U.S. central bank is
eagerly awaited," said Commerzbank in a note. "Should interest
rates be kept at a low level long term, the U.S. dollar could
come under pressure and this could generally support gold."
Gold also benefits from persistently low interest rates
because they cut the opportunity cost of holding non-interest
bearing assets such as bullion.
Investment in gold ETFs climbed on Tuesday, with the SPDR
ETF noting a 5 tonne rise in its holdings, while ETF Securities
said holdings of the five gold exchange-traded commodities it
operates from London rose more than 22,600 ounces.
On the supply side of the market, Japan's biggest bullion
house, Tanaka Kikinzoku Kogyo, said on Tuesday it recycled 2.9
tonnes of gold from the country's households in the year to May
31, the first year of its recycling programme. []
In a note, Bank of America-Merrill Lynch said it was keeping
its price target for gold at $1,500 an ounce, which it expects
to see by the end of 2011. It lifted its average gold price
forecasts to $1,200 in 2010, $1,350 in 2011 and $1,400 in 2012.
"We also believe that silver has further upside and see
prices averaging $18 an ounce, $20.25 an ounce and $21 an ounce
in 2010, 2011 and 2012 respectively," it added.
Silver tracked gold higher to $18.92 an ounce from $18.74.
Among other precious metals, platinum <XPT=> was at $1,578.40 an
ounce versus $1,582.50, and palladium <XPD=> at $484 against
$481.50.
(Reporting by Jan Harvey; Editing by Jane Baird)
