Weak dollar, Greek debt propel gold to 3-week high

LONDON: Gold hit its highest in more than three weeks on Friday as worries about Greece's debt crisis triggered buying by investors looking for a safe place to park assets, while the softer dollar also helped underpin sentiment.

Spot gold hit $1,534.80 a troy ounce, its highest since May 4. It was bid at $1,527.90 an ounce at 1351 GMT from $1,518.10 late in New York on Thursday.

Gold's appeal has been boosted in recent weeks by worries about contagion from Greece to Ireland, Portugal and Spain.

The dollar fell to session lows against the euro after European Central Bank Governing Council member George Provopoulos said Greece can handle its debt if it sticks to its aid programme..

"The dollar is weaker, boosting commodities," said Peter Fertig, a consultant at Quantitative Commodity Research. "Also don't forget the situation in the euro zone, especially the latest comments from an EU official."

In the latest development on the Greek crisis, the head of euro zone finance ministers Jean-Claude Juncker said the International Monetary Fund could withhold the next slice of aid to Greece due next month.

"The chances of debt default by Greece are rising," a trader said, adding higher oil prices were also helping gold.

Gold is used by investors as a hedge against inflation, often triggered by rising oil prices.

SILVER HEDGING

Holdings of the largest silver-backed ETF, New York's iShares Silver Trust and the largest gold-backed exchange-traded-fund (ETF), New York's SPDR Gold Trust were unchanged on Thursday from Wednesday.

Overall though interest in gold ETFs remains unabated. However, that is not true of silver ETFs. Holdings have fallen by nearly nine million ounces this week, bringing year-to-date outflows to 42.79 million ounces or 8.4 percent.

Part of the reason behind silver's losses are producer hedging, an indication prices may be peaking.

Focus in the silver market was on Mexican miner Penoles, which earlier this week said it had hedged 13.4 million ounces of silver through 2013.

"This is not the first time that we're hearing of silver producer hedging this year," UBS said in a note.

Spot silver was bid at $38.04 an ounce from $37.24 late on Thursday, platinum at $1,785.49 from $1,764.85 and palladium at $755.72 from $751.45.

"We believe that the cash cost of the marginal producer is still the relevant benchmark to judge whether platinum and palladium provide value or not," Standard Bank said in a note.

"Therefore, the market could trade lower, fundamentally growing value in platinum and palladium on approach of $1,700 and $700 respectively."