Gold holds near $1,540 ounce

LONDON: Gold prices retreat a touch on Friday, under pressure from a firmer dollar, but concerns over the euro zone debt crisis kept prices firmly underpinned as they boosted the metal's haven appeal.

Spot gold was bid at $1,540.11 an ounce at 1137 GMT, against $1,543.60 late in New York on Thursday. U.S. gold futures for August delivery eased $1.30 to $1,541.40.

The euro fell 0.3 percent as holders of the currency worried about the European Central Bank's (ECB) rejection of debt restructuring for Greece and scaled back expectations of the pace of ECB rate hikes.

A consequently stronger dollar would usually pressure gold more, as the metal becomes more expensive for holders of other currencies and less attractive as an alternative asset. But euro zone debt worries are supporting gold in its own right.

"A weaker euro driven by the uncertainty in Europe tends not to hurt gold," said Ole Hansen, senior manager at Saxo Bank. "Gold is staying where it is, because it gets support from that uncertainty."

"It just adds to the sense that investors are not willing to let go of their gold for the moment," he added.

"We bounced very strongly from the correction in May, and that has increased confidence that gold is heading higher eventually."

On the bond markets, the cost of insuring Greek government debt against default rose on Friday, with uncertainty over what form any Greek debt restructuring may take hurting other lower-rated euro zone sovereigns as well.

Gold remains firmly within the $1,520-1,555 range it has broadly stuck to this month as the markets wind down for the typically quieter summer months.

While in the longer term it is likely to make fresh highs, gold is set to consolidate, or even pull back, in the immediate future, analysts said.

"We are bullish on gold's prospects for the rest of this year, but would not rule out a pullback over the summer months," Swiss bank UBS said in a note on Friday.

"There are three major reasons why we think gold could reverse: the end of the Fed's QE2, the traditional seasonal slowdown, and the potential for gold prices to tumble during an extreme risk-off event when cross-asset correlation is high."

The bank said any correction was likely to be short-lived, however. It cut its one-month forecast for the precious metal to $1,475 an ounce from $1,500, but raised its three-month forecast to $1,600 from $1,400.

Sterling-priced gold meanwhile rose to a record 951.78 pounds an ounce as the underlying price of the precious metal remained supported while sterling fell after disappointing UK industrial output data.

"Both the euro and sterling denominated bullion prices outperformed the (dollar) benchmark on the LBMA yesterday," said VTB Capital analyst Andrey Kryuchenkov in a note.

Silver was at $37.31 an ounce against $37.53. The gold: silver ratio the number of silver ounces needed to buy an ounce of gold which has steadied broadly between 40 and 45 since early May after hitting 28-year lows in April, held near 41 on Friday.

Platinum was at $1,833 an ounce against $1,836.85, while palladium was at $808.68 against $813.08.

The metals, chiefly used in auto-catalysts, are expected to firm this year as car sales improve after a poor 2009 and 2010, but prices will be sensitive to signs the auto industry is continuing to struggle.

Toyota Motor Corp, the world's biggest carmaker, forecast a larger-than-expected 35 percent fall in annual profit on Friday and warned the strong yen was making it difficult to justify keeping production in Japan.

Copyright Reuters, 2011