Gold rises 0.6 percent as euro zone jitters resurface

Reuters) - Gold prices rose on Tuesday as concerns over the financial health of the euro zone resurfaced ahead of a summit in Paris between French and German leaders, at which they will try to thrash out a solution to the bloc’s debt crisis.

Poorly-received German and euro zone growth data stoked concerns the region may be far from recovering its economic footing, pushing both the euro and European shares lower, and boosting the appeal of so-called safe havens like gold and the Swiss franc.

Spot gold was up 0.6 percent at $1,775.69 an ounce at 7:23 a.m. EDT, partially reversing a correction it began late last week after hitting a record $1,813.79 on Thursday.

It remains up 25 percent this year, driven by worries over U.S. and euro zone debt.

“Equities pulled back today, the greenback bounced back up and Germany’s Q2 GDP was fairly disappointing,” said Andrey Kryuchenkov, an analyst at VTB Capital. “The broader market is still nervous and uncertain ahead of the Merkel/Sarkozy meeting today.”

“(If) risk sentiment does not get much worse we (will) consolidate here. Otherwise it’s back to $1,795 and then $1,800. As before, investors will be unwilling to liquidate.”

European shares .FTEU3 fell more than 1 percent after German gross domestic product growth slowed more than expected in the second quarter, weighed by a negative trade balance, flagging consumption and weak construction investment. .EU

The data pressured the euro from a three-week high versus the dollar, while German government bonds firmed as a tentative recovery in risk appetite soured.

Risk appetite was further dampened by a subsequent reading of euro zone GDP, which showed the euro zone economy grew less than forecast in the second quarter.

U.S. gold futures for August delivery were up $21.00 an ounce at $1,779.00. Gold priced in euros reversed three sessions of losses to rise 1.2 percent to 1,235.45 euros an ounce, below last week’s record 1,283.38 euros.

The largest gold fund players, including hedge fund titan John Paulson, stuck with their bullion bets in the second quarter, opting not to follow George Soros who further reduced his gold ETF holdings, data showed on Monday.

Outflows from the world’s largest gold-backed exchange-traded fund ceased on Monday, with its holdings remaining unchanged after a near 50-tonne decline last week.

Swiss bank UBS said in a note on Tuesday its latest client poll showed 60 percent of respondents expected gold to be trading above $1,800 by year-end, and 32 percent saw prices attaining $2,000 or higher.

“That a majority of respondents expects gold to end the year above current very-elevated levels suggests that the macroeconomic backdrop is expected to remain supportive, and that September will again bring traditionally strong seasonal physical demand,” the bank said in a note.

“Our physical sales to India picked up last week, and were the strongest since late June... That physical demand is resilient and scrap supply underwhelming... is providing strong fundamental support for gold.”

Among other precious metals, silver was down 1.2 percent at $39.35 an ounce.

The gold:silver ratio, or the number of silver ounces needed to buy an ounce of gold, rose back to 45 on Tuesday, having dipped below that level on Monday after prices corrected.

“Silver has been a sideways trade between $37.10 and $42.18 for the past month,” said ScotiaMocatta in a note.

“The metal has not been able to shake off the stigma from the bubble-like drop in April/May. We would only become bullish silver on a close above 50 percent level (at) $41.05.”

Among other precious metals, spot platinum was up 0.2 percent at $1,806.24 an ounce, while spot palladium was down 0.4 percent at $741.72 an ounce.