* Worries on how Greece will cut deficit lift risk aversion
* Euro, stocks, industrial commods fall
* SPDR gold ETF hits record, silver iShares ETF rises
(Updates, adds comment, changes dateline from SINGAPORE)
By Jan Harvey
LONDON, May 11 (Reuters) - Gold rose towards $1,210 an ounce
in Europe on Tuesday as risk aversion returned to the market
amid fears smaller euro zone countries will struggle to cut
their deficits despite a $1 trillion emergency aid package.
The measures, unveiled on Monday, sparked a relief rally in
assets seen as higher risk, such as the euro, stocks and
industrial commodities, and knocked gold lower. But the precious
metal has recovered as the rally in other assets lost steam.
[]
Spot gold <XAU=> was bid at $1,208.55 an ounce at 0919 GMT,
against $1,201.90 late in New York on Monday. U.S. gold futures
for June delivery <GCM0> on the COMEX division of the New York
Mercantile Exchange rose $8.50 to $1,209.30 an ounce.
"This morning disillusionment has come back to the markets,"
said Daniel Briesemann. "The euphoria we saw yesterday has
almost ended. Gold has remained well supported on safe-haven
demand, and we think it will drive further from here."
"Market participants are still concerned about the financial
positions of a number of countries of the euro zone and their
debt problems, despite last weekend's aid package."
Gold rallied to a five-month high at $1,213.35 an ounce on
Friday as concern that Greece's debt problems would be echoed
elsewhere in the euro zone, but slid 2 percent on Monday after
the aid package sparked a relief rally across financial markets.
That recovery fizzled out on Tuesday. The euro <EUR=> lost
0.6 percent against the dollar, European shares fell 1.5 percent
in early trade and oil prices slid below $76 a barrel. []
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RISK APPETITE
The dollar <.DXY> rose against a basket of currencies as
risk appetite waned. Usually this would weigh on gold, which can
be bought as an alternative to the U.S. currency, but the usual
strong link between the two has weakened in recent months.
"Gold has recently proven an ability to escape from its
traditionally negative correlation with the greenback as long as
bullish drivers emanate from its safe-haven status or its
perception as an asset of last resort, features it shares with
the U.S. currency," said Societe Generale in a note.
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For a graphic showing gold's correlation with the
dollar index, click on:
http://graphics.thomsonreuters.com/gfx/SBrb_20101105094549.jpg
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Investment in gold held firm, meanwhile, with holdings of
the world's largest gold-backed exchange-traded fund, New York's
SPDR Gold Trust <GLD>, rising 3.652 tonnes to a record 1,192.150
tonnes on Monday. []
Its holdings have risen 33.148 tonnes, worth some $1.275
billion at Monday's London afternoon fix price, in May so far.
High prices weighed on Indian gold demand, dealers said
however, after physical offtake saw a slight pick-up in the
previous session ahead of the key gold-buying festival of
Akshaya Tritiya on May 16, dealers said. []
Among other precious metals, platinum group metals declined
in line with other industrial commodities after Monday's bounce.
Platinum <XPT=> was at $1,685.50 an ounce against $1,693, while
palladium <XPD=> was at $516.50 against $529.
"Given the current pressure on commodities and reduction in
risk exposure, further consolidation can be expected
short-term," said TheBullionDesk.com analyst James Moore.
He added that in the longer term, the metals were likely to
be underpinned by increasing industrial and investment demand as
the auto sector, the biggest consumer of the metals, recovers.
Silver <XAG=> was bid at $18.40 an ounce against $18.44.
Holdings of the largest silver ETF, the iShares Silver Trust,
rose 76.22 tonnes on Monday. []
(Editing by Sue Thomas)
