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Sun 14 Aug 2011 09:40 AM

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Gold extends dip from record as risk appetite firms

Risk appetite picks up in markets as stocks and currencies including dollar and euro recover

Gold extends dip from record as risk appetite firms

Gold prices fell on Friday, extending the previous session's
retreat from record highs as fresh strength in equity markets and gains in the
euro versus the safe-haven Swiss franc pointed to sharper appetite for risk.     

 Spot gold was down
1.7 percent at $1,735.64 an ounce at 1340 GMT. It is still on track for its
best weekly performance since November 2009, however, and has risen 22 percent
so far this year on a potent mix of concerns over US and euro zone debt levels
and economic growth.          

The precious metal hit a record $1,813.79 an ounce early on Thursday.
Investors remain jittery over the outlook for the US economy, which could
eventually spark a fresh rally in gold, analysts said.            

 "Near term, a
correction makes sense in relation to other safe havens," said Macquarie
analyst Hayden Atkins. "Gold has traded in lockstep with US government
debt in particular. As Treasuries have risen, gold has basically gone the same
way."               

"The question is, if people are more concerned about
the sovereign risks around the United States, added into the problems
elsewhere, will that relationship break down?              

"That is what you would need for the gold price to go
higher - for people to be reflecting their concerns more in gold than in safe
havens in general."          

Gold hit a session low of $1,734.90 an ounce after Wall Street
stocks rose at the open after data showed US retail sales posted their biggest
gain since March last month.            

 A rebound in stock
markets in recent days has diverted some investment from gold.    

 The world's largest
gold-backed exchange-traded fund, New York's SPDR Gold Trust , reported its
biggest one-day outflow since January 25 on Thursday, with its holdings
declining by 23.6 tonnes, worth some $1.3bn at current prices.   

 "Some ETF
investors clearly view the recent gold's sharp price rally as exaggerated and
have taken profits as financial markets calm," said Commerzbank in a note.     

But overall risk-averse buyers have been out in force this week,
putting gold on track for its biggest one-week rise in nearly two years, up 4.4
percent.          

In the week ended Aug. 10, two of the largest gold ETFs, SPDR
and the iShares Gold Trust , had their fourth-biggest week of net inflows, data
from Lipper showed on Thursday.

 On the physical
market, robust investment demand in Asia helped gold premiums in Hong Kong and
Singapore remain steady.                

"The gold market remains underpinned by the movement to
physical gold, which has persisted all week," said UBS in a note.
"European demand for small bars particularly, but also coins, remains very
strong. As the week has progressed Asian physical demand, outside India, has
been noticeably higher.      

"We have also observed among existing and indeed new
clients this week a growing preference towards allocated gold instead of metal
account/unallocated gold. This is quite obvious among our wealth management and
private clients, but even among the fund industry, interest in allocated gold
is growing again.           

"The move to real assets such as gold in physical form signifies
the heightened state of risk aversion at present."             

While investment remains high, relatively little gold scrap is
being returned to the market, with much readily available metal already having
been sold.               

Among other precious metals, silver was down 0.5 percent at
$38.51 an ounce.                

The gold:silver ratio, or the number of ounces of silver needed
to buy an ounce of gold, held near 46 on Friday, close to its highest since
early February, as silver underperformed gold.     

Meanwhile, spot platinum was up 0.7 percent at $1,795.20 an
ounce, while spot palladium was up 0.7 percent at $743 an ounce. 

Platinum prices edged back above those of gold after the two
metals reached parity for the first time since late 2008 early this week, but
gold may still regain its premium over platinum if risk aversion rises once
more, lifting gold as a safe-haven and weighing on platinum as an industrial
metal.              

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