Gold Prices up 1% on Greek Debt Deal

(REUTERS) -- Gold prices rose 1 percent on Thursday as the euro rallied to a fresh two-month high against the dollar after Greece clinched a deal with European Union and IMF leaders needed to avoid a messy default.

Spot gold was up 0.8 percent at $1,746.66 an ounce at 1515 GMT, having earlier risen as high as $1,751.69, while U.S. gold futures for February delivery were up $18.00 an ounce at $1,749.30.

Greece's agreement to adopt new austerity measures, confirmed by European Central Bank President Mario Draghi at a press conference, should pave the way for a 130 billion euro ($172 billion) aid package for the troubled country.

The euro rallied on the news, while European shares extended gains and the yield gap between Belgian and German 10-year bonds reached its tightest since July on Thursday as the euro zone's lower-rated credits rallied. .EU

The euro-dollar is now gaining because of positive news for the euro. Gold priced in dollars is piggy-backing on this, said Bayram Dincer, analyst at LGT Capital Management.

This is a first-round effect, but the higher-order response from a risk perspective is that now, with the containment of an uncontrolled default, we are now on track with the Greek debt agreement. That should not result in a gold price rally.

Greece's partners in the European Union and the IMF had become increasingly exasperated by a lack of agreement on the measures they demand in return for the bailout.

The European Central Bank held interest rates at a record low on Thursday, seeing tentative signs of economic stabilization. Draghi said however they were only fledgling signs, suggesting rates could yet fall below 1.0 percent.

Gold prices are up more than 10 percent this year, buoyed by the view that U.S. monetary policy will remain extremely loose.

DEBT JITTERS

The metal failed to benefit earlier this week from jitters over European debt, which sent it to a series of record highs last year, as these were offset by currency moves.

Gold has been trading along with everything else. It doesn't seem to be a risk trade at the moment, as much as a dollar/euro trade, said Citigroup analyst David Wilson.

Among other precious metals, silver was up 0.6 percent at $34.16 an ounce. Silver has been one of this year's best-performing commodities, up by more than a fifth this year.

The rebound in silver has been powerful and a correction seems in order, said ScotiaMocatta in a note. How the market handles this pullback will remain all important, as a sharp correction could spook investors again, as happened after the April/May sell-off last year.

Overall we expect dips to be well supported, but would be wary on a drop below $30/oz, it added.

Spot platinum was up 0.2 percent at $1,664.24 an ounce, while spot palladium was up 0.3 percent at $712.72 an ounce.

The chief executive of Lonmin, the world's third-largest primary platinum producer, said it could be forced to review its 2015 output target if safety stoppages and strikes continue to batter the South African-based industry.

Expectations that platinum output from number one supplier South Africa could be hurt by labor- and safety-related stoppages and power outages has helped push prices up 19 percent this year.

Ongoing production delays at Impala Platinum's Rustenburg mine are fuelling anxiety over short-term global supply, said Standard Bank in a note.

The metal has also narrowed its historically unusual discount to gold to less than $80 an ounce, from around $230 an ounce earlier this year.