Gold held steady near recent 11-week highs on Wednesday, supported by the euro's rise to a two-month peak as investors bet that Greece will finally secure a second bailout needed to avoid default. Greek political leaders are meeting in Athens on Wednesday afternoon to discuss conditions for the country's second financing package, the Prime Minister's office said.
They are trying agree a reform deal in return for a new rescue from a chaotic default, after repeated delays which have prompted warnings that the euro can live without Athens. Spot gold was at $1,745.70 an ounce at 1523 GMT, little changed from $1,744.90 an ounce late in New York on Tuesday. US gold futures for February delivery were down $3.50 an ounce at $1,742.90. The euro's rise to a two-month high helped gold to climb. The precious metal usually benefits from a weaker dollar, which makes commodities priced in the US unit cheaper for holders of other currencies.
European shares meanwhile hit a new six-month high, with cyclical stocks extending a strong run as investors became more confident that economic growth would boost company earnings, and eclipse concerns about Greece. Commerzbank analyst Carsten Fritsch said the market had latched on to commodity fundamentals. "The positive correlation between gold and risky assets like stock markets seems to be in place after dropping temporarily on Friday," he said.
Receding risk aversion - reflected in rising share prices - may dampen gold's safe-haven credentials, with German government bonds feeling some pressure, but that impact is being outweighed by a retreat in the dollar. In the longer term, wider uncertainty on the euro zone's economic outlook will likely be more supportive for gold. Germany earlier saw its steepest drop in exports for nearly three years in December and the Bank of France said its economy would not grow at all in the first quarter of 2012. Looking at technical analysis charts, Barclays backed a bullish outlook for the metal, seeking a move above $1,765 to confirm its view.
On physical markets, premiums on gold bars in Singapore stood around $1 an ounce over London prices, said a Singapore-based dealer. The gold-silver ratio, which measures how many ounces of silver is needed to buy an ounce of gold, hovered above 51, its lowest level in three months. For most part of 2011, the ratio was below 46, compared to a near 30-year average of 64.
Spot silver rose 0.2 percent to $34.19 an ounce, leading the precious metals complex with a nearly 24 percent gain this year. Edward Meir, an analyst at INTL FCStone, said silver is facing heavy resistance around $35.70, near a previous high hit in late October. "Should silver take out this level, we will be in a technical breakout stage, possibly setting the complex up for a push to the $40 mark," he wrote in a research note. Platinum prices were up 0.6 percent at $1,654.24 an ounce, while palladium was up 0.3 percent at $705.50.
UBS said in a note to clients that there was potential for platinum to attract a South African premium due to production outages. "The ongoing production outages at Rustenburg, coupled with a risk-on macro backdrop, could see investors starting to consider the possibility of a $1,700-plus price tag," the bank said.
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