* Portugal debt concerns boost gold as safe haven
* Softer dollar helps precious metal as inflation hedge
* Higher physical demand from India supports
(Recasts and updates prices and market activity to U.S. session;
adds NEW YORK to dateline, second byline)
By Barani Krishnan and Jan Harvey
NEW YORK/LONDON, Jan 10 (Reuters) - Gold rose on Monday,
ending a week of sharp losses, as worries over Portugal's debt
boosted safe-haven demand for the precious metal while a softer
dollar helped its role as an inflation hedge.
Higher demand for gold from top consumer India -- following
last week's price drop -- also helped the rebound.
Gold posted its largest weekly loss in more than seven months
last week as the dollar rallied on better-than-expected U.S. data,
which raised expectations for tighter monetary policy soon in the
United States.
But signs at the weekend that Portugal was being forced by
other euro zone members to solve its debt woes soon reignited
concerns over European sovereign risk, luring some money away from
the dollar into gold, traders said.
"Beyond this short-term correction, we continue to hold a
positive view of the gold price for the balance of 2011," said
Anne-Laure Tremblay, precious metals analyst at BNP Paribas in
London. "Sovereign risk will remain a key theme for gold in
2011."
A senior euro zone source said on Sunday pressure was growing
on Portugal from Germany, France and other euro zone countries to
seek financial help from the European Union and International
Monetary Fund to stop the bloc's debt crisis from spreading.
[]
When risk aversion grows in the euro zone, 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
euro zone crisis flared up, notably in the second quarter.
The euro <EUR=> rebounded from a four-month low against the
dollar on Monday on speculation that Portugal would have to seek
debt aid soon.
A softer dollar typically helps gold because it makes the
metal more affordable for holders of the euro and other
currencies.
Spot gold <XAU=> hovered at around $1,375 an ounce in New York
late on Monday, versus Friday's comparative quote of $1,368.80.
U.S gold futures for February delivery <GCG1> settled up
$5.20, or 0.4 percent, at $1,374.10 an ounce.
INDIAN BUYERS ATTRACTED
Traders said gold prices were also helped by stronger physical
demand for bullion in India, the world's biggest jewelry market.
Traders said Indian buying of gold picked up after last week's
price drop. They said gold merchants were stocking up ahead of the
country's upcoming harvest festival and wedding season, which
marks a traditional peak period for gold demand. []
Despite the higher physical demand, interest in gold-backed
exchange-traded funds (ETFs) remained damp. Holdings in the
largest gold ETF, New York's SPDR Gold Trust <GLD>, dropped by 1.5
tonnes, latest data showed. []
Societe Generale said in a weekly note that buying by
exchange-traded funds had been markedly slower as prices rose
recently to above $1,400 an ounce. But it said demand for
"over-the counter" investments in gold was robust "and there are
clear indications that this demand will remain strong this year."
Holdings of the largest silver ETF, the iShares Silver Trust
<SLV>, fell more than 53 tonnes. Spot silver <XAG=> was at $29 an
ounce versus $28.69 on Friday. []
Platinum <XPT=> was above $1,738 an ounce, from $1,731
previously, while palladium <XPD=> hovered around $751 from
$748.50 on Friday.
(Editing by Jim Marshall)
