Firm investment demand outweighs weak jewelery buying… Euro weakens on euro zone outlook… Oil prices tumble nearly 10 percent…

Gold swung into the black on Tuesday, rising more than 2 percent to a one-week high of $855.75 an ounce, amid market talk of a large order.

Firm investment demand for gold as a haven from risk is fueling buying of the precious metal, analysts said.

Spot gold was quoted at $853.00/855.00 an ounce at 1228 GMT, up from $834.55 late on Monday. Earlier it touched a low of $822.90, down more than 1 percent.

Standard Chartered analyst Daniel Smith said strong investor flows into products such as exchange-traded funds as investors sought more secure assets were offsetting weaker jewelery demand.

“People are slowly building long positions in gold and commodities more generally,” he said.

Gold managed shrugged off early weakness linked to a strengthening U.S. dollar and weaker oil prices.

The dollar rose to a six-week high against the euro as traders worried about the outlook for the euro zone economy, after the European Commission issued a grim forecast for 2009 and Standard and Poor’s cut Spain’s debt ratings.

A stronger dollar tends to pressure gold, which is often bought as an alternative investment to the U.S. currency.

“With financial institutions struggling in Europe and euro zone government bond spreads widening, weak economic data could see the euro lose ground against the dollar,” noted Standard Bank analyst Walter de Wet.

In Germany, data showed the Mannheim-based ZEW economic think tank’s monthly poll of economic sentiment rose to -31.0 from -45.2 in December.

The other main external driver of gold, crude oil, tumbled almost 10 percent, after Russia and Ukraine agreed on a gas deal that will help secure supplies to Europe and as traders worried over the outlook for demand.

Gold tends to move in line with crude, as it is often used as a hedge against oil-led inflation. Moves in the oil price are also an indicator of interest in commodities as an asset class.

Markets are awaiting the inauguration of new U.S. president Barack Obama. Obama is due to take the oath of office at 1700 GMT.

JEWELERY DEMAND WEAK

Overall, fears over the outlook for the global economy and the financial system are boosting interest in products like exchange-traded funds — which issue securities backed by actual stocks of gold. These are seen as less risky than paper assets.

The world’s largest gold-backed ETF, New York’s SPDR Gold Trust, said its holdings are at a record 795.25 tonnes.

However, demand for consumer products such as gold jewellery is suffering from relatively high gold prices. Jewelery demand in the world’s largest bullion market, India, slowed on Tuesday as buyers waited for prices to fall.

Demand may pick up if prices move below 12,500 rupees locally and $800 on the international markets, Mayank Khemka, managing director of Khemka International in Delhi, said.

Among other precious metals, platinum weakened a touch to $942.50/947.50 an ounce, against $948.50 late on Monday.

Prices have remained in a relatively narrow range below $1,000 an ounce as traders continue to fret about the demand outlook as the economy slows.

Platinum has shed some 60 percent of its value since it hit an all-time high of $2,290 an ounce last March on fears over falling consumption by car makers, who account for around half of global demand for the metal.

Prospects for the economy, and the automotive sector in particular, “remain very worrying” for platinum, Societe Generale said in a weekly report.

Palladium was quoted at $181.50/186.50 an ounce against $183 late on Monday, while silver fell to $11.29/11.36 an ounce from $11.13.

LONDON, Jan 20 (Reuters)

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