Gold nears $1,200; up for seventh day

Gold rose towards $1,200 an ounce in Europe today, set for a seventh daily gain, as fund buying and consumer demand in Asia helped offset the impact of a recovery in the dollar and a decline in ETF holdings.

Gold has rallied by 1.5% so far this week, its best weekly performance since late June, as renewed concern about the outlook for the US economy, a resurgence in consumer buying and the reestablisment of the inverse relationship to the dollar have combined to support the market.

Spot gold  was last bid at $1,196.35 an ounce at 1300 GMT in London, compared with $1,194.60 late in New York on Wednesday, having hit two-week highs at $1,202.90 the day before. December COMEX futures were last at $1,198.80 an ounce, showing a $3.20 gain on the day.

Data showing an unexpected rise in US initial weekly jobless claims undermined the dollar and pushed gold near session highs at $1,199.55.

"What the consensus at the moment is yes, jobs are probably recovering but not nearly strongly enough to bring unemployment down in a meaningful fashion," said Citi analyst David Thurtell.

"We've said for months that $1,250 might be the top. We haven't really seen anything to make us depart from that in the last month or so. We can get back up there if, say, worries emerge about the US fiscal situation," he said.

Much of gold's safe haven appeal for investors that derived from the euro zone debt crisis and pushed prices to record highs in late June has evaporated.

But James Moore, an analyst with thebulliondesk.com said renewed confidence in the global economy, helped by upbeat corporate earnings, has lifted the broader commodity complex as well as gold itself by association.

"While we have seen a bit of improvement in the European debt situation, I think investors are still very cautious and obviously, more and more people are looking to diversify their portfolios. So, even if they only add a fraction of gold, those numbers add up," Moore said.

As nervousness over the euro zone has abated, concern about the robustness of some US economic data has resurfaced, knocking the dollar against the euro and resurrecting gold's traditional inverse relationship to the US currency.

On Thursday, the euro broke above $1.32 after European Central Bank president Jean Claude Trichet said data suggested stronger euro zone growth in the second quarter of 2010, while US stock futures slid after the rise in US jobless claims.

There has been intense speculation in the fixed income markets that the Federal Reserve will embark on a fresh bond-buying programme to ensure interest rates remain at their current low levels for some time, an environment that would be beneficial to gold, which does not offer any yield.

"It's still a very tricky market to call on the near term. I suppose the positive sign for gold now is that it has held up some pretty heavy selling pressure towards $1,150," said Mark Pervan, senior commodities analyst at ANZ in Melbourne.

The Bank of England also left interest rates unchanged.

An abatement in some of the consumer buying that had emerged with gold's foray below $1,160 an ounce and ongoing redemptions from exchange-traded products restricted gains in gold.

Holdings at the world's largest exchange-traded fund, SPDR Gold Trust fell for a seventh time to 1,281.834 tonnes.

Holdings hit a record of 1,320.436 tonnes on June 29.

In other precious metals, silver was up about 0.7% on the day, holding at $18.38, compared with $18.25 in New York on Wednesday, shrugging off a decline in silver holdings in the iShares Silver Trust.

In the platinum group metals, platinum pared earlier losses to hold around $1,575.45 an ounce, versus $1,577.00.

Workers at South Africa's Impala Platinum were voting on possible strike action at the world's second largest platinum producer. Palladium was at $496.00, versus $494.00.