* Concerns still linger over euro zone's fiscal health
* Gold ETF holdings remain near record highs
* Palladium climbs more than 4 pct after last week's slide
(Updates prices, adds comment)
By Jan Harvey
LONDON, May 24 (Reuters) - Gold rose 0.85 percent in Europe
on Monday, recovering some of last week's losses, as lower
prices tempted buyers back to the market amid lingering concerns
over the fiscal health of the euro zone.
Stock markets slipped and the euro extended losses after the
Spanish central bank's takeover of a savings bank underlined
structural problems facing fiscally fragile euro zone states.
Spot gold <XAU=> was bid at $1,185.15 an ounce at 1019 GMT,
against $1,175.15 late in New York on Friday. U.S. gold futures
for June delivery <GCM0> on the COMEX division of the New York
Mercantile Exchange rose $9.40 to $1,185.50 an ounce.
"The nervousness of currency markets is clearly visible in
the gold market," said Pradeep Unni, senior analyst at Richcomm
Global Services in Dubai. "The extreme fear of potential
unannounced ECB intervention or a fresh development in the euro
bloc is keeping investors on the edge."
The euro <EUR=> fell 1.5 percent against the dollar as an
early rally in the single currency ran out of steam, as
investors continued to cut risk in their portfolios after news
the Bank of Spain was taking control of savings bank CajaSur.
[]
A stronger dollar usually weighs on gold, but the
traditional strong inverse link between the two assets has
weakened as both are benefitting from risk aversion. In the
longer term, this link may well be re-established, Unni said.
"Now more than ever, arguments of the dollar and gold
decoupling from (their) inverse correlation are emerging and
this is because investors are hedging recent euro zone and UK
crises equally in gold and US dollar," he said.
"The key point is that gold never actually decouples from
the U.S. currency on a longer time duration."
Holdings of the world's largest gold exchange-traded fund,
New York's SPDR Gold Trust <GLD>, are still at record levels
despite last week's price correction, fuelling expectations
investors are buying the metal as a long-term haven from risk.
ETF HOLDINGS NEAR RECORD
While investment demand for gold as a safe store of value
has been strong so far this year, with ETF holdings near record
levels, high prices have hurt jewellery demand.
Italian precious metal jewellery imports are thought to have
declined 5 percent year on year in volume terms in the first two
months of 2010, though they have risen 9 percent in the same
period in value, the president of the Fiera di Vicenza jewellery
trade show said on Saturday. []
Euro-priced gold <XAUEUR=R> also rose 2.4 percent on Monday
after tumbling 6 percent last week, despite hitting a record
high at $1,012.81 euros an ounce on May 17.
Other precious metals also recovered after last week's hefty
falls. Palladium, which tumbled as much as 25 percent last week
from the previous Friday's close to its lowest level since early
February, climbed 4.5 percent in early trade.
Palladium <XPD=> was at $442.23 versus $433.50, off a high
of $453, and platinum <XPT=> at $1,524.50 versus $1,504.50.
UBS analyst Edel Tully said in a note that a report released
by the U.S. Commodity Futures Trading Commission showed a sharp
drop in interest in palladium in New York last week.
"Palladium was the heavy loser in the pack, with the Nymex
book falling 8.7 percent or 160,000 ounces. This represented the
biggest one week percentage decline since the week of Sept 29
last year," she said.
Silver <XAG=> was bid at $17.82 an ounce against $17.59.
(Reporting by Jan Harvey; Editing by Amanda Cooper)
