* Sliding dollar boosts year-end interest in gold
* Bullion set to clock 25 pct gain for the year
* Palladium above $400/oz for first time since July 2008
(Updates, adds comment, changes dateline from SYDNEY)
By Jan Harvey
LONDON, Dec 31 (Reuters) - Gold rose 1 percent to above
$1,100 an ounce in Europe on Thursday as the dollar slipped
against the euro, boosting interest in the precious metal as an
alternative asset.
Trading was thin in the run-up to the New Year holiday, with
many market participants absent until Jan. 4.
Spot gold <XAU=> was bid at $1,103.60 an ounce at 0929 GMT,
against $1,092.55 late in New York on Wednesday. U.S. gold
futures for February delivery <GCG0> on the COMEX division of
the New York Mercantile Exchange rose $12.30 to $1,104.80.
Afshin Nabavi, head of trading at MKS Finance in Geneva,
said moves in gold were being exaggerated by the thin market.
"The leaders seem to be euro/dollar and the oil price," he
said, adding that rising Middle East tensions could further lift
crude oil and consequently gold.
The euro jumped more than 0.4 percent against the dollar on
Thursday just as markets in London opened. Weakness in the U.S.
currency makes dollar-priced commodities cheaper for holders of
other currencies. []
Even before these losses, the dollar index <.DXY> was set to
end 2009 down about 4 percent.
Oil prices also rose back towards $80 a barrel, extending
their rally for a seventh day, driven by a drop in U.S. crude
stocks as the cold snap fuelled demand. []
Gold tends to track crude prices, as the metal can be bought
as a hedge against oil-led inflation.
On the wider markets, gains in commodity stocks and banks
amid firm risk appetite helped lift European shares 0.2 percent
early on Thursday. []
PEAKS
Gold prices have risen around a quarter this year, peaking
at a record $1,226.10 an ounce in early December. They have
benefited at various times from fears over financial market
stability, dollar weakness and worries over inflation.
Buying of investment products such gold exchange-traded
funds has lent strong support to prices. Holdings of the world's
largest gold-backed ETF, New York's SPDR Gold Trust <GLD>, have
risen 353 tonnes or 45 percent in the year to Dec. 30.
Analysts say the outlook for prices in 2010 is uncertain,
with much depending on the inflation outlook and U.S. monetary
policy. A rise in U.S. interest rates could lift the dollar, and
consequently weigh on gold.
Precious metals house Heraeus said in a research note that
it sees gold prices at an average $1,175 an ounce next year.
"The upward trend, despite the recent setback, should
initially stay intact," it said. "Any rally should continue to
be driven by investors, and they will prefer investing in
physical metal."
"A change in the overall positive attitude could happen once
the low interest rates in the U.S. and Europe change," it said.
"Any bigger hike here is not to be expected before 2011."
Among other precious metals, palladium rose more than 2
percent to break through the $400 an ounce level for the first
time since July 2008, with firm investment demand and gains in
gold helping to lift prices.
Palladium <XPD=> hit a peak of $400.50 and was later at
$399.50 an ounce against $391, while platinum <XPT=> was at
$1,469 against $1,454. Spot silver <XAG=> was bid at $17.03 an
ounce against $16.79.
Investment demand for platinum and palladium through ETFs
has represented a solid source of demand this year.
Holdings of ETF Securities' London platinum-backed
exchange-traded product <PHPT.L> have more than doubled this
year to Dec. 29, while those of its London palladium ETP
<PHPD.L> have almost quadrupled.
(Reporting by Jan Harvey; Editing by Anthony Barker)
