PRECIOUS-Gold buoyed by financial uncertainty

Fri Jun 25, 2010 9:28pm IST

* Gold still a favourite with investors

* Gold could see new record if G20 disappoints

* Lawmakers agree historic Wall Street reform

By Pratima Desai and Maytaal Angel

(Updates prices, adds details)

LONDON, June 25 (Reuters) - Gold rose nearly 1 percent on Friday as investors sought refuge from financial market uncertainty and currency depreciation as they awaited the outcome of a weekend G20 meeting.

Data released earlier showing the U.S. economy expanded at a 2.7 percent annual rate in the first quarter, down from the 3 percent pace initially reported last month, increased its safe-haven appeal. [ID:nN24163944]

Spot gold XAU= was bid at $1,253.75 a troy ounce at 1530 GMT from $1,244.05 an ounce late in New York on Thursday. The metal earlier hit a session high of $1,256.65 an ounce.

"Sovereign risk has attracted establishment money into gold, which tends to be long-term money. It's about adding safe haven security to portfolios. In the next few weeks you might see profit taking but the trend is solidly upwards," said VM Group analyst Jessica Cross.

Markets were watching the cost of protecting Greek government debt against default, which rose to a record high on Friday. They were also keeping a close eye on weak equities in Europe. [ID:nLDE65O0FP] [.EU]

Trading could remain subdued, however, as the market awaits the conclusion of a Group of 20 leaders' summit this weekend. Any disagreements about the best way to ensure growth and fiscal responsibility could add to gold's appeal. [ID:nLDE65O0BP] [ID:nN24201828]

On the other hand, some financial market uncertainty has ebbed after an agreement by U.S. lawmakers to overhaul financial market regulation on Wall Street. The measures must still win approval from both chambers of Congress. [ID:nN25155960]

HEIGHTENED PREFERENCE

Spot gold hit a record high of $1,264.90 on June 21 and U.S futures GCc1 touched a contract high of $1,264.80 an ounce on the same day, spurred in large part by sovereign risk concerns in Europe.

"Nobody is giving up on gold, there is too much uncertainty in the world," said Andrey Kryuchenkov, an analyst at VTB Capital.

"Gold is trading like a currency. People are not ready to liquidate their holdings; they are using price dips as buying opportunities. That was the case at $1,230 support."

Gold has over the past couple of years benefited from perceptions that governments were quietly trying to depreciate their currencies to help boost exports and growth.

Earlier this week the U.S. Federal Reserve acknowledged the faltering pace of recovery in the United States, the world's largest economy, and renewed its pledge to hold interest rates at very low levels for a long time. [ID:nN22150078]

That decision has a two-fold effect on the gold market. It dampens dollar sentiment, which boosts demand for gold. Low or zero interest rates also mean there is no opportunity cost for holding gold, which earns no interest or dividends.

These two factors partly explain why holdings of the world's largest gold-backed exchange-traded fund, SPDR Gold Trust, rose to a new record high at 1,316.177 tonnes as of June 24 from the previous high of 1,313.135 tonnes on June 22. [GOL/SPDR]

The Fed's downbeat statement has also weighed on industrial precious metals including silver, used in electronics, and platinum and palladium, used to make autocatalysts.

Spot silver XAG= was at $18.89 an ounce from $18.65 late in New York on Thursday, while platinum XPT= was at $1,562.50 from $1,557.50 and palladium XPD= at $469.28 from $471.00. (Editing by Jane Baird)

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