Gold was in the highest week

Gold held near one-week highs on Tuesday as weakness in the euro stemming from the ongoing European debt crisis offset any potential price gains from a major exchange of artillery fire on the Korean peninsula.

Conviction is growing in the financial markets that the European Union's joint bailout of Ireland with the IMF will not be enough to quash fears that Portugal and possibly Spain could become the next target of fixed-income investors' anxiety.

Canada's finance minister said on Monday he was pressing the European Union to address the Portuguese debt crisis quickly, although he fell short of saying the country would need a bailout like Ireland.

The euro EUR= remained under pressure as the coalition government in Dublin looked to be facing a struggle to pass an austerity budget that is a condition of financial aid.

With the U.S. currency reaping the benefit from the euro's decline, gold priced in dollars XAU= dipped 0.1 percent to $1,364.40 an ounce at 1000 GMT, versus $1,366.09 late on Monday and down from a session high of $1,369.75. U.S. gold futures GCZ0 rose 0.4 percent to $1,364.10.

"We do continue to see positive buying, initially out of Asia. We think that will continue throughout December, so that is supporting gold," said Standard Bank analyst Walter de Wet.

"The sovereign debt issues, we thought, should support gold, but given that, gold in euros has performed better than gold in dollars," he added.

Gold priced in euros XAUEUR=R was at 1,004.78 euros an ounce, up about 0.2 percent on the day, having broken through the 1,000-euros mark on Monday for the first time in a week.

Gold's traditional inverse relation to the U.S. dollar broke down in May this year when the euro zone's debt problems became apparent, prompting investors to dump the single European currency.

LINK IN PLACE

This time around, this inverse link has remained, meaning it has been harder for gold to attract much in the way of safe-haven flows. Speculators in New York have cut their exposure to gold futures by 4 million ounces in the last month.

Indeed, holdings of gold in the world's largest exchange-traded fund, the SPDR Gold Trust (GLD), have fallen by 1.5 percent since ratings agency Fitch cut Ireland's credit rating in October and the country's bond yields began climbing.

"The difference now is, back in May when these issues first appeared, no one really knew how the EU and the ECB would deal with that," de Wet said.

"Now there is a precedent in that people know there is support for a bailout. Ireland has been bailed out, Greece has been bailed out and if there's more problems, there will be more bailouts," he said.

Fanning geopolitical tensions, North Korea on Tuesday fired dozens of artillery shells at a South Korean island, setting buildings on fire and prompting a return of fire by the South, Seoul's military and media reports said.

The dollar and U.S. Treasuries rose and U.S. stock futures fell on Tuesday. [MKTS/GLOB] [USD/]

"This is a trigger for the 'risk off' button. You'll certainly see selling in risk-based markets like equities and commodities until we get a better read on events," Mark Pervan, senior commodities analyst at ANZ in Melbourne.

"There should be reasonable support for gold although we often see a firmer dollar as the initial reaction to risk and lower gold prices, but industrial metals might get hit, oil, too."

With the U.S. Thanksgiving holiday around the corner, investors are watching for a batch of data, as well as minutes from the Federal Reserve's meeting on Nov 2-3, where the Fed decided to launch its $600 billion bond purchase programme.

Spot silver XAG= fell 0.7 percent to $27.62 an ounce.

Holdings in the iShares Silver Trust (SLV), the world's largest physically-backed exchange-traded fund, hit a record high of 10,841.98 tonnes by Nov 22.

Platinum XPT= fell by 0.2 percent to $1,657.50 an ounce, while palladium XPD= was down by 1.7 percent at $679.47.

source