LONDON: Gold priced in euros hit record highs for a second day on Tuesday after European Union officials' pledges on handling the region's debt problems did not quell investor fears about the spread of the crisis to other euro zone members.
The strength of the dollar pushed down the price of gold in the US currency, while bullion priced in sterling, Australian dollars, rand and other high-yielding currencies rallied.
Euro zone finance ministers promised cheaper loans, longer maturities and a more flexible rescue fund on Monday to help Greece and other EU debtors in a bid to stop financial contagion engulfing Italy and Spain.
Investors punished stocks and bonds from the more indebted euro zone members such as Greece and recently-bailed out Portugal, but also Italy and Spain, forcing up yield premiums over benchmark German Bunds and pummelling equity markets.
Spot gold fell 0.5 percent to $1,545.71 an ounce by 0950 GMT, having risen in each of the last six trading sessions, while gold in euros was up by 0.3 percent, set for a third daily rise, at 1,110.30 euros an ounce, having hit a record 1,118.58 euros an ounce earlier.
COMEX August gold futures eased 0.2 percent to $1,546.6.
"Today, there are concerns about the debt crisis in Europe.It's not only Italy, it's overall concerns about Spain ans well and the stress tests, which are to be presented this Friday and this is definitely driving all commodities, but in this case gold is standing out as a big excpetion," said Commerzbank strategist Eugen Weinberg.
"It's not suprising, given that gold is seen as a risk aversion test ... so right now, the demand for gold is likely also, drven by these concerns, to stay high."
Gold priced in higher-yielding currencies, which also suffered the brunt of investor distate for risk, such as the Australian dollar ,the South African rand or the Canadian dollar , also rallied.
STANDOUT WINNER
Gold also shrugged off weakness in more economically-sensitive industrial commodities such as crude oil, palladium or copper .
"We'll probably see a lot of support for gold from rising risk aversion due to concerns of escalating debt in Europe," said Natalie Robertson, a commodities analyst at ANZ.
"Although the rising dollar could pare back some of the interest in gold."
Many analysts believe gold could return to the all-time high of $1,575.59 set on May 2, but any rapid sell-off in equities or other commodities could spread dent it as investors sell bullion to cover losses elsewhere.
Adding to the uncertainy over the outlook for the euro zone, the International Monetary Fund is not yet ready to discuss conditions or terms of a second Greek bailout, the fund's new managing director, Christine Lagarde, said on Monday, adding that Italian economic growth had to improve, in addition to fiscal consolidation, to restore confidence?.
China, the world's largest gold producer, said its gold output in the first five months of the year grew 3.67 percent from a year earlier to 132.02 tonnes. It produced 340.88 tonnes of gold in 2010, up 8.6 percent on the year.
Stubbornly high inflation in China has driven investors to bullion, seen as a safe storage of value.
China's inflation quickened to a three-year high in June and investors are watching out for further tightening measures from Beijing, which vowed to fight rising prices as its top priority.
Spot silver fell by more than 1.5 percent on the day to $35.08 an ounce, pushing the gold/silver ratio -- or number of ounces of silver needed to buy one ounce of gold -- to 44.1, just shy of mid-June's four-month high of 44.5.
Platinum was last down 0.2 percent at $1,713.65 an ounce, while palladium shed 1.4 percent to trade at $753.23.
Copyright Reuters, 2011
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