Gold holds below $1,370 in Europe

Gold held below $1,370 an ounce on Monday as the firmer dollar kept up pressure on the metal, offsetting concerns about the prospects for Portugal's sovereign debt, which lifted the metal's appeal as a haven from risk. Spot gold was bid at $1,366.85 an ounce at 1459 GMT, against $1,368.80 late in New York on Friday. US gold futures for February delivery fell $2.10 an ounce to $1,366.70.
Prices last week posted their biggest one-week fall since May 2010 after a run of better-than-expected US data lifted expectations that monetary policy could tighten sooner rather than later. The return of concerns over the eurozone has tempered that dip, though risks remain. "Overall positive US economic data last week reduces the likelihood of further quantitative easing, thus weighing on gold's safe haven and inflation hedge appeal," said BNP Paribas analyst Anne-Laure Tremblay.
"Higher bond yields are also raising the opportunity cost for holding gold. Beyond this short term correction, we continue to hold a positive view of the gold price for the balance of 2011," she added. "Sovereign risk will remain a key theme for gold in 2011."
A senior eurozone source said on Sunday that pressure is growing on Portugal from Germany, France and other eurozone countries to seek financial help from the European Union and International Monetary Fund to stop the bloc's debt crisis from spreading. The euro was down 0.1 percent versus the dollar, after earlier reaching lows not seen since mid-September.
A stronger dollar typically pressures gold, because it makes the metal more expensive for holders of other currencies and reduces its appeal as an alternative asset. When risk aversion grows in the eurozone, it can lift the appeal of both the dollar and gold. Last year the usual negative correlation between gold and the dollar weakened at times when the eurozone crisis flared up, most notably in the second quarter.
Buying in India, the world's biggest gold consumer, rose on Monday after last week's price fall attracted buyers back to the market, and traders stocked up ahead of the upcoming harvest festival and on wedding demand, dealers said. But interest in gold-backed exchange-traded funds continued to be lacklustre, with holdings of the largest, New York's SPDR Gold Trust, dropping by a further 1.5 tonnes on Friday.
Societe Generale said in a weekly note that buying by exchange-traded funds had been markedly slower as prices rose above $1,400 an ounce. "This, of course, does not necessarily mean that investor appetite has become sated," it said. "ETF purchases, as noted above, were eclipsed by the very strong demand in (over the counter) products, and there are clear indications that this demand will remain strong this year."
"This will be driven by Chinese buying at the retail level in particular," it added. Holdings of the largest silver ETF, the iShares Silver Trust, also fell more than 53 tonnes on Friday. Spot silver was at $28.77 an ounce against $28.69. Platinum was at $1,735.99 an ounce against $1,731, while palladium was at $749.47 against $748.50.