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Gold jumps 1.5 percent on euro zone
debt fears

Gold rose 1.5 percent on Friday, its biggest daily gain in two
weeks, on safe-haven buying as investors fretted about euro
zone debt after Fitch cut Greece's credit ratings.

Bullion fell early in the session before turning higher after Fitch
downgraded Greece's rating and as the International Monetary Fund urged
Europe to agree to more comprehensive measures to tackle the debt crisis.

The euro fell against the dollar on caution before upcoming Spanish
elections this weekend and the uncertain Greek debt situation. Crude oil
and commodities reversed early losses as the dollar pared gains, and the
euro zone worries boosted gold and silver.

"A lot of the move this morning is prompted by the move of the dollar. That
dollar strength is probably short-lived...It has largely run its course and
may soon begin to reverse," said Jeffrey Kleintop, chief market strategist
of LPL Financial, which has $100 billion in assets under management.

Spot gold rose 1.5 percent to $1,514.49 by 2:52 p.m. EDT (1852 GMT). U.S.
June gold futures settled up $16.50 at $1,508.90 an ounce, after trading
between $1,486.40 and $1,515.80, which marked a one-week high.

Gold is up 1.5 percent for the week. The metal is still 4 percent lower after
rallying to a lifetime high near $1,575 an ounce in early May.

Silver was up 0.6 percent at $35.16, but remained down 30 percent from
the record $49.51 hit on April 28.

Bullion has dropped three out of the last four sessions on weak U.S.
housing and manufacturing data and uncertainty about the end of the
Federal Reserve's bond-buying program.

"This week, we've had one of the worst weeks for economic data so far
this year, as most of the data came in below expectations. I don't think that
will be the case next week," said Kleintop, whose firm has an overall
commodity allocation of between 10 to 20 percent.

Managed money sharply scaled back their bullish bets in COMEX gold
futures and options to the lowest level since March as prices fell sharply,
U.S. regulator data showed.

Investor sentiment took a toll on Monday when billionaire financier George
Soros dumped almost his entire $800 million stake in bullion in the first
quarter, well before a commodities slump blamed partly on reports he was
liquidating his holdings, regulatory filings showed.

VOLATILITY RISING, OPTION EXPIRY

CBOE gold volatility index .GVX, a gauge of bullion investor anxiety, rose 3
percent, its first rise this week, after the metal moved in a $30 range on
Friday.

COMEX options expiry next week were also keeping prices hemmed in
around the $1,500 mark, where sizable open interest was aligned, said
Tom Kendall of Credit Suisse.

Prices tend to gravitate toward large pools of open interest as options
expire. June options are scheduled to expire May 25.

Also supporting gold was news that the cost to hedge against a U.S.
government debt default rose on Friday to its highest level since January
ahead of the government's sales of $99 billion in securities next week.

Worries persist over Washington's struggle to reach a deficit-cutting deal
and to raise its $14.3 trillion legal borrowing limit, which was hit on Monday.

Gold is among one of the assets expected to fall in the three months after
the end of the Fed's second massive bond buying operation, also known
as quantitative easing, or QE2, a Reuters poll found. QE2 is scheduled to
expire in June.

Bullion was up 20 percent since August when Fed Chairman Ben
Bernanke's speech at Jackson Hole, Wyoming marked the beginning of
QE2. The Fed is not expected to raise interest rate for the rest of 2011.

CHART POTENTIAL

On the charts, gold kept finding support at its 50-day moving average, a
level it has held for more than three months.

"Gold's been given every opportunity to break this week, and it has
refused to do so, and now it appears in the process of breaking out to the
upside instead. We are much impressed ... enough so to add to our gold
positions," said Dennis Gartman, publisher of The Gartman Letter.

Silver was set to end the week about 1 percent for its third consecutive
weekly decline.

Holdings of the largest silver-backed exchange-traded-fund (ETF), New
York's iShares Silver Trust, dropped 2.32 percent on Thursday from
Wednesday. <GOL/ETF>

The drop in iShare silver holdings suggests rallies will continue to prompt
bouts of long liquidation from speculative investors, research firm
FastMarkets said in a note.

Among platinum group metals, platinum was up 0.4 percent at $1,769 an
ounce, while palladium rose 1.4 percent to $733.97.