* Hopes Greece will stay in the euro zone lift euro
* Stresses in European banking system still spook markets
* Increase in gold shorts outpaces gains in longs – CFTC
(Updates prices)
By Jan Harvey
LONDON, May 28 (Reuters) – Gold prices rose in Europe on
Monday after opinion polls ahead of Greek elections next month
showed pro-bailout conservatives in the lead, lifting the euro
versus the dollar on hopes Greece may stay in the euro zone.
Lingering concerns over sluggish growth in the currency bloc
and the health of Spanish banks mean the euro is still on track
to fall 5 percent in May, however. Gold is down 5.2 percent in
the same period and is vulnerable to further losses in the euro.
Spot gold was up 0.3 percent at $1,577.76 an ounce at
1150 GMT, while U.S. gold futures for June delivery were
up $8.30 an ounce at $1,577.20. The precious metal fell 1.1
percent last week.
“Gold is moving very much in line with the forex market,”
Natixis analyst Nic Brown said. “On a day like today, when you
have a bit of optimism about the Greek opinion polls, the euro
strengthens, the dollar weakens, and gold benefits from that.”
But without the support lent to the market last year by
safe-haven demand linked to the euro zone debt crisis, prices
will struggle to rise significantly in the near term, he said.
“It feels as though there is plenty of scope later this year
for the focus to move from the European fiscal situation to the
U.S. fiscal situation. That has the potential to be supportive
for gold prices,” he said. “But I would have to say that apart
from that, the outlook doesn’t look particularly good.”
The euro bounced off a two-year low to rise 0.1
percent early on Monday, as fears over a potential Greek exit
from the euro zone subsided.
Analysts hope a conservative victory on June 17 will lead to
Athens forming a government that would agree to harsh bailout
terms by the European Union and the International Monetary Fund,
enabling it to stay in the euro zone.
The news boosted assets seen as higher risk across the
board, with European shares up 0.5 percent and oil prices
climbing nearly $1 a barrel.
The bond markets pointed to ongoing worries over euro zone
debt, however, with the premium investors require to hold
Spanish government bonds over their German counterparts at its
highest since the euro was launched on Monday.
LEAN TIMES FOR INDIAN DEMAND
While gold prices in India tracked the spot price higher,
physical demand for the metal in its biggest global consumer
remained depressed by the weak rupee and seasonal factors.
“We are heading towards a seasonally weak demand period,”
Babu Alapatt, managing director at retailer Alapatt Gold Pvt Ltd
in the southern state of Kerala, said. “The wedding season is
coming to an end and the monsoon is approaching.”
Meanwhile, data from the U.S. Commodity Futures Trading
Commission showed that in the week ended May 22, speculators cut
net bullish bets on U.S. gold to the lowest since Dec. 2008 as
the rise in short positions outpaced the uptick in longs.
Among other precious metals, silver was flat at
$28.51 an ounce. Silver has underperformed gold this month, on
track to decline 7.6 percent after falling to its lowest this
year at $26.73.
Holdings of silver-backed exchange-traded funds were at a
one-month high on Friday, Reuters data showed, at 489.3 million
ounces, though they remain around 7 percent below the record
high they hit in April 2011.
Spot platinum was up 0.7 percent at $1,435.99 an
ounce, while palladium was up 1.8 percent at $596.97.
The gold/platinum ratio, which measures the number of
platinum ounces needed to buy an ounce of gold, held at its
highest since early January on Monday.
“Within the precious metals complex, gold continues to
outperform relative to silver and the platinum group metals,”
Deutsche Bank said in a note.
“We expect this trend to continue in an environment where
downside risks to global growth continue to persist.”
(Editing by Alison Birrane)
