LONDON: Gold prices rose on Tuesday as investors spooked by talk of a Greek debt default and contagion to other euro zone countries sought safety while a softer dollar also helped.
Spot gold was bid at $1,543.04 a troy ounce at 1000 GMT compared with $1,539.95 late in New York on Monday when it touched $1,545.90, its highest since June 9.
Investors are watching Greece where Prime Minister George Papandreou's cabinet faces a confidence vote later on Tuesday, the first of three tests the government must survive to avert the euro zone's first sovereign debt default.
"Gold is inextricably linked to the events in Greece, both gold and silver are hostage to contagion fears," said RBS analyst Nick Moore. "The elevation of gold can be firmly nailed on safe-haven buying."
The vote in Greece follows a euro zone ultimatum that the debt-choked Mediterranean state must approve a new five-year package of painful economic reforms in two weeks or miss out on a 12-billion-euro aid tranche that it needs to avoid bankruptcy.
IMF and European inspectors are also in Athens to discuss changes requested by Greece to the reform package.
"The default chorus is getting louder, people are wondering where this is going to end, perhaps Greece will leave the euro," a precious metal trader said. "I wouldn't be surprised to see gold heading towards record highs."
Gold hit a record high of $1,575.79 an ounce on May 2.
RIPPLE EFFECTS
Greece's problems have in recent weeks damaged euro sentiment and boosted the U.S. currency.
However on Tuesday, optimism in currency markets of a positive outcome to Greece's problems helped the euro and weighed on the dollar, which when it falls makes gold cheaper for holders of other currencies.
Investors are afraid of what could happen if the situation in Greece were allowed to continue. They are worried about the ripple effects to countries such as Italy, Ireland and Spain.
"Uncertainty still haunts market participants with small scale safe haven buying pushing bullion prices back up," said Andrey Kryuchenkov, analyst at VTB Capital.
"Eurozone's debt woes are fuelled by Greece's failure to adopt fresh austerity measures while it makes the situation worse for other peripheral states with the cost of sovereign funding on the rise." Yields on Greek and other lower-rated euro zone bonds such as those issued by Italy rose after ministers delayed granting emergency loans to Greece.
Silver touched $36.20 an ounce, its highest since June 13, and was last at $36.07 from $36.00 on Monday. Platinum was bid at $1,735.05 from $1,726.95 and palladium was at $751.22 from $743.65.
Concerns about demand from car manufacturers to use in autocatalysts have hit prices of platinum and palladium in recent days, traders said.
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