LONDON, May 11 - Gold hit five-month highs on Tuesday, rising to within $5 of its December record peak as risk aversion returned on doubts over smaller euro zone countries' ability to cut their deficits despite a $1 trillion 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. Gold slipped, but has recovered as the rally in other assets lost steam.
Spot gold hit a peak of $1,223.90 an ounce, its highest since early December, and was bid at $1,221.80 an ounce at 1402 GMT, against $1,201.90 late in New York on Monday.
"Investors are trying to search out safe havens, and clearly gold is one of those," said RBS Global Banking & Markets analyst Daniel Major. "While the current environment of acute investor risk aversion remains, gold is bound to benefit."
"After very few inflows into the exchange-traded funds and other investment instruments, we have seen a sharp increase in the last or three weeks."
U.S. gold futures for June delivery on the COMEX division of the New York Mercantile Exchange rose $22.00 to $1,222.80 an ounce. Silver also hit a five-month high at $19.18, before easing back to $19.15 an ounce against $18.44.
Gold rallied last week on concern that Greece’s debt problems would be echoed elsewhere in the euro zone, but slid 2 percent on Monday after the rescue package sparked a relief rally across financial markets.
That recovery fizzled out on Tuesday. The euro lost 0.4 percent against the dollar, European shares fell nearly 2 percent and U.S. shares opened lower.
The dollar 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.
INVESTMENT FIRM
Investment in gold held firm, with holdings of the world’s largest gold-backed exchange-traded fund, New York’s SPDR Gold Trust, 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.
But high prices weighed on Indian gold demand, dealers said, 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.
Gold priced in euros and Swiss francs also hit record highs at 963.10 euros an ounce and 1,356.51 francs an ounce respectively.
Platinum group metals fell along with other industrial commodities after Monday’s bounce. Platinum was at $1,689 an ounce against $1,693 and palladium at $519.50 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.
