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Thu 24 Nov 2011 04:22 PM

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Gold up on bargain hunting, euro recovery

Prices have eased more than 10% since hitting record of around $1,920 in Sept

Gold up on bargain hunting, euro recovery
Gold hit a 2.5 month low of $1,534.49 in late September

Gold rose on Thursday to around $1,700 an ounce after its
decline to one-month lows this week triggered some bargain hunting, helped by
the euro's slight gain against the dollar after the common currency hit
seven-week lows the previous day.

Gold's rise mirrored that of European equity markets, which
inched up on Thursday, also driven by technical factors and bargain hunting
after shares fell 7 percent in five sessions.

Spot gold last traded at $1,697.30 an ounce at 1107 GMT, up
0.3 percent on the day after hitting a session low of $1,680.54 on Wednesday.

"It's been slightly more bullish since London opened,
London's come in and taken us back over $1,700, as a bit more stability has
come through in the FX markets," said Credit Suisse precious metals
analyst Tom Kendall.

"The euro is up a touch against dollar, sentiment more
broadly across equities and commodities is slightly more positive today,"
he said, adding there has been a slight pick-up in physical and private bank
buying.

The euro recovered slightly to trade at $1.3375 from
Wednesday's lows but positive German economic data is unlikely to reassure
investors, especially after Berlin's most disappointing bond auction in 10
years on Wednesday.

The dollar lost 0.3 percent against a basket of currencies,
while Thursday's Thanksgiving holiday in the United States could suppress
trading volumes in both currency and commodity markets, meaning gold may behave
more erratically.

Investors will look to German chancellor Angela Merkel,
French president Nicolas Sarkozy and new Italian prime minister Mario Monti for
clues to the direction of the euro zone at a meeting in Strasbourg.

It is expected Sarkozy will pressure the German leader on
her reluctance to allow the European Central Bank to take a more active role in
the euro zone crisis.

Merkel has been firm in her view that the European Central
Bank should not act as a lender of last resort but Germany's bond auction
showed even the bloc's biggest economy is not immune from the crisis.

The threat to the euro from the crisis increases the chances
for gold to ease further, analysts said.

"That the price slump in gold is mainly US
dollar-driven is evident from the fact that gold calculated in euros has been
able to rise," Commerzbank said in a note.

"Obviously gold is continuing to be sold to generate
liquidity and compensate for losses in other asset classes. If equity and
commodity markets continue to remain under pressure, this trend is initially
likely to continue."

Gold priced in euros was roughly flat on the day on
Thursday, trading around 1,269.44 euros an ounce, but has risen by nearly 2
percent in the last three trading days, its strongest three-day stretch of
gains in two weeks.

"It wouldn't surprise me if we still have another shift
lower to test the big line of support, which is the 200-day moving average,
which is getting close to $1,600 level," Credit Suisse's Kendall said of
the dollar price of gold.

Gold hit a 2.5 month low of $1,534.49 in late September,
which was roughly the location of the 200-day moving average.

In other precious metals, silver gained in line with gold. A
senior official at ScotiaMocatta, a bullion dealer, said on Thursday Indian
imports of silver would be marginally lower this year compared to last year.

India is a key consumer of silver and the world's largest
consumer of gold.

The spot silver price was up 1.0 percent on the day at
$32.01 an ounce, but remained on track for a 6.3 percent decline in November.

Platinum was up 0.2 percent at $1,543.13 an ounce and
palladium was up 0.6 percent at $585.00.

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