Gold soars in Europe

Gold rose on Tuesday after a flurry of inflation data signalled a continued increase in price pressures, while this week's near-1 percent decline in the bullion price enticed some physical buying. Renewed concern about Greece and its ability to fund itself remained on the boil, while US wholesale prices rose again in May and consumer spending staged its first drop in 11 months, fanning existing concern about the world's largest economy.
Chinese data earlier showed inflation in the world's second largest economy is running at its fastest pace in almost three years, giving investors an additional incentive to buy gold, which can act as a hedge against rising price pressures. Spot gold was last at $1,520.62 an ounce, up 0.4 percent from Monday, when it suffered its biggest one-day loss in a month, touching a three-week low of $1,511.11. "Currencies are probably still going to be pretty influential and macro news out of Europe and the US and euro/dollar is going to be the key (cross) to watch, as well as further inflationary indicators out of Asia," said RBS strategist Daniel Major.
"China and India have had strong inflation prints in the last month and that is going to keep a pretty solid level of residual physical demand out there." Talk of a second bailout for Greece coming closer to a conclusion as the European Commission pushes for a voluntary debt swap also helped shore up sentiment.
"A weaker dollar has helped the rebound today, albeit amid low volumes. We see uncertainty surrounding the next aid tranche to Greece as gold supportive," said Andrey Kryuchenkov, analyst at VTB Capital. "Uncertainty will underpin the market towards the end of the month when Athens is scheduled to get its next loan under conditions that are currently being worked out." Greece became the lowest-rated country in the world in the rankings of credit rating agency Standard & Poor's, putting it below Ecuador, Jamaica, Pakistan and Grenada.
The decline in investor appetite for gold over the prior two trading days was reflected in the 241,000-ounce decline over the last week in holdings of the metal in exchange-traded funds. Holdings of the largest gold-backed ETF, New York's SPDR Gold Trust fell 0.08 percent on Monday from Friday, while the largest silver-backed ETF, New York's iShares Silver Trust saw its holdings fall 2.1 percent.
Spot silver recovered from Monday's 4-percent slide and edged up in line with gold, up by 0.4 percent on the day at $34.93 an ounce. "The market had been heavily overbought on the euphoric expectation that silver would continue to outperform gold and it needed to have some froth blown off it," Societe Generale said in a research note. Spot platinum was last up 0.2 percent at $1,795.50 an ounce, while palladium was up 0.6 percent at $794.22 an ounce.