* Oil rises above $40 a barrel on Middle East violence
* Dollar slips vs euro on grim outlook for U.S. economy
* Gold hits record high in sterling terms, Reuters data says
(Updates prices, adds detail)
By Jan Harvey
LONDON, Dec 29 (Reuters) - Gold was firmer on Monday,
tracking a climb in crude oil prices on the back of burgeoning
tensions in the Middle East, although it retreated from earlier
highs as oil gave up some of its gains.
Weakness in the dollar is also supporting gold, while a
slide in the value of sterling to a record low versus the euro
helped to take the precious metal to a new all-time high when
priced in British pounds, according to Reuters data.
Spot gold <XAU=> reached a session high of $889.55 an ounce,
its strongest level since Oct 10, but eased to $875.20/877.20 by
1422 GMT from $866.80 late in New York on Friday.
In sterling terms, gold hit a new all-time high of 605.07
pounds an ounce, up from 592.40 pounds on Friday. U.S. gold
futures for February delivery <GCG9> climbed $6 to $877.20.
"Gold is following recent events in the Middle East," said
Deutsche Bank trader Michael Blumenroth. "It is reflecting
geopolitical tensions."
"The other precious metals are tracking gold at the moment,
and the oil market," he added. "People are also looking at the
U.S. dollar, which is also helping gold."
Israeli aircraft destroyed a bastion of Hamas rule over the
Gaza Strip on Monday, the third day of an offensive that has
killed more than 300 Palestinians in the deadliest violence in
the territory. []
Geopolitical tensions increase interest in bullion as a safe
haven investment and are also a prime factor driving oil prices,
which also influence gold, higher.
Oil rose nearly 10 percent to a high of $42.20 a barrel as
the violence served as a reminder that political tensions could
threaten Middle East crude supplies. However, they later slipped
back below $40 a barrel. []
"Further geopolitical tension should inflate the risk
premium in current precious metal prices, which should translate
into increased upside potential in the near term -- barring any
significant decline in financial market systemic risk," Standard
Bank analyst Manqoba Madinane said.
The other main external driver of gold, the dollar, weakened
against the euro, helping to lift bullion prices. A softer
dollar typically supports gold, which is often bought as an
alternative investment to the U.S. currency.
The dollar fell broadly on Monday as a grim outlook for the
U.S. economy weighed. []
SILVER GAINS
Among other precious metals, silver <XAG=> tracked gold
higher to $11.04/11.12 an ounce from $10.64 late on Friday.
Earlier it touched a near two-week high of $11.23 an ounce.
Investment demand for silver-backed exchange-traded funds
remains strong.
The world's largest silver-backed ETF, the iShares Silver
Trust <SLV.A>, said its bullion holdings rose more than 30
tonnes or 0.5 percent on Dec. 26 to their highest since late
October. []
The New York-based trust has recorded an inflow of more than
106 tonnes of silver since the beginning of December.
Platinum group metals also climbed, with platinum touching a
session high of $931 an ounce, its strongest in 10 weeks. Later
it was quoted at $903.50/913.50 an ounce against $888.50.
"The white metal should benefit from further bargain hunter
interest in the coming sessions, with chart resistance pegged at
$938/44/74," James Moore, an analyst at TheBullionDesk.com,
said.
"However the metal still remains overshadowed by slowing
auto demand and shifting market fundamentals," he added.
Fears over falling demand from the car industry, which
accounts for around half of global platinum consumption, has
knocked platinum down by as much as two-thirds from the all-time
high of $2,290 an ounce it reached in March.
Spot palladium <XPD=> rallied nearly 7 percent to a session
high of $186.50, lifted by gains in other precious metals and in
oil. It was later quoted at $183/188 an ounce, up from $174.50
in New York late on Friday.
(Reporting by Jan Harvey; Editing by Anthony Barker)
