By: Clara Denina

London 04/01/2012 - Gold fell back from fresh 10-day highs in Europe on Wednesday morning, taking its cue from broader markets, where traders are struggling to maintain yesterday's upbeat sentiment.

Some volatility is anticipated throughout the session due to the continued absence of some Asian traders. Shanghai has just reopened after the New Year's holiday and Tokyo is set to be closed for most of the week, so conditions may be choppy and illiquid at times.

Spot gold, which rose 2.7 percent in the previous session and recouped last week's losses of 2.6 percent, rose to a fresh high since December 23 at $1,613.70 at one stage before settling back at $1,603.50/1,604.30 per ounce, down $2.80.

Gold continues to mirror patterns in equity markets, having abandoned its traditional safe-haven role.

"As a new year begins, patience is certainly more limited for whether gold can shed its recent pattern of behaving more like an equity stock than a safe-haven," broker UBS said in a note.

A rally in the euro - it rose above 1.30 versus the US dollar in the previous session after falling to a 15-month low last week - proved to be short-lived. The single currency fell to 1.303 today. European stocks were also mostly flat.

Yesterday, ratings agency Fitch cut Spain's economic growth forecasts to zero in 2012 and one percent next year from previous projections of 0.5 percent and 1.5 percent respectively.

Speculation that Greece may have to leave the eurozone was again raised by Greek government spokesman Pantelis Kapsis yesterday. Greece continues to struggle to avoid a sovereign default and the consequences may be catastrophic if the latest bailout package is not agreed by March, he said.

The market focus is now on two major auctions of long-term bonds in Europe - an auction of 10-year government bonds that recently ended in Germany ahead of tomorrow's sale in France.

Germany was looking to raise 5 billion euros of 10-year debt today - bids of 5.14 billion euros were received so there was sufficient demand.

"After French and Italian yields nudged higher yesterday, a strong uptake of the traditionally safe bunds would suggest that the bullish tone with which 2012 got underway may be set to change," a trader said.

The results of these auctions may help to set the tone ahead of next Monday's meeting between Chancellor Angela Merkel and President Nicolas Sarkozy.

Among other precious metals, silver rose to its best since December 21 at $29.78 yesterday, a gain of seven percent, after losing 4.2 percent last week and a staggering 14.8 percent in December, when it was the worst-performing precious metal. It was last at $29.35/29.38 per ounce, down 29 cents.

Palladium, which rose to its highest since December 13 at $670.30 in the previous session, up 2.6 percent, fell $8 to $656.50/662.50 per ounce. And platinum was down $6 to $1,424/1,434.

The platinum group metals (PGMs) have remained unmoved by reports that global sales of cars and light vehicles are forecast to rise this year, led by increased demand in China, where the Ministry of Commerce will encourage spending on vehicles and electrical appliances.


(Editing by Mark Shaw)