* Euro firms a touch, dollar retreats
* Markets cautious ahead of Portuguese bond auction
* Largest gold, silver-backed funds see fresh outflows
(Updates throughout, previous SINGAPORE)
By Jan Harvey
LONDON, Jan 12 (Reuters) - Gold prices rose in Europe on
Wednesday, as a retreat in the dollar, rising oil prices and
caution ahead of a sale of Portuguese bonds later in the day all
boosted interest in the precious metal.
Spot gold <XAU=> was bid at $1,383.10 an ounce at 1004 GMT,
against $1,380.45 late in New York on Tuesday. U.S. gold futures
for February delivery <GCG1> fell $1.20 an ounce to $1,383.10.
Prices are clawing back some lost ground after posting their
biggest weekly loss since mid-2010 last week, as a focus on more
positive U.S. data raised the prospect that U.S. authorities may
roll back quantitative easing measures sooner rather than later.
"Last week's slide in gold to around $1,353 was more of a
sell-off... on the fear that the U.S. would report a huge job
growth figure, which did not happen," said Pradeep Unni, senior
analyst at Richcomm Global Services.
"With the euro still deep (in the) debt crisis and physicals
using every dip to buy the metal on anticipation of an extended
rise, there is little downside possibility for gold, at least in
this quarter," he added. "Weakness in the dollar and rising oil
will add to the... reasons to hoard gold."
The euro edged up on Wednesday on speculation that euro zone
finance ministers may raise the lending capacity of the region's
rescue fund, though gains were limited as investors braced for a
Portuguese bond auction later in the session. []
Portuguese government bond yields hovered around 7 percent
on Wednesday as it prepared to tap investors for funds in
auctions seen as a key test of the country's ability to stave
off an international bailout. []
"Today's bond auction could be seismic for markets were it
to fail," said Credit Agricole in a note. "We suspect it will
not and yesterday's narrowing of spreads, reportedly on the back
of ECB buying, points to a determination to underpin sentiment."
"Nonetheless, markets remain shaken, and policymakers so far
have not really been stirred to step up the aggressiveness of
their actions beyond the kind of 'sticky plaster' remedy
delivered yesterday," it added. "The euro will remain vulnerable
as a result."
OIL CLIMBS
Among other commodities, oil prices rose, with Brent crude
climbing to $98 on Wednesday, their highest since October 2008,
as production shutdowns in Norway and Alaska raised expectations
of an accelerated tightening of supplies. []
U.S. crude also rose to within a few dollars of its recent
more than two-year high. Rising oil prices can fuel demand for
commodities as an asset class, lifting gold.
Gold buying in India, the world's biggest consumer of the
metal, eased on Wednesday as prices rose, but buying remains
strong overall across Asia, particularly in China. Premiums for
gold bars hit their highest in two years on Tuesday. []
"The impressive Chinese demand has been fuelled by lower
prices, the upcoming New Year, and also physical delivery
against the February Shanghai Futures Exchange contract," said
UBS analyst Edel Tully in a note.
"We expect the heavy Chinese demand to persist for another
10 days or so, and turn very light in the five or six days
before the Feb. 3 Chinese New Year, as seen in previous years."
Demand for gold to back exchange-traded funds eased off
further, meanwhile, with holdings of the largest, New York's
SPDR Gold Trust <GLD>, slipping just over 1 tonne on Tuesday.
Its holdings have declined more than 9 tonnes since the start of
the year. []
Holdings of the largest silver ETF, the iShares Silver Trust
<SLV>, also declined, to 10,725.73 tonnes on Tuesday from
10,786.51 tonnes. []
Silver <XAG=> was bid at $29.67 an ounce against $29.50.
Platinum <XPT=> was at $1,787.99 an ounce against $1,765.99,
while palladium <XPD=> was at $802.47 against $782.
(Editing by James Jukwey)
