By Clare Black
LONDON (Reuters) - Gold firmed in Europe on Thursday as the U.S.-led war on Iraq entered its second week, with fears growing that the conflict could be longer and more costly in human and financial terms than most had imagined.
The safe-haven metal has benefited from renewed physical buying as consumers take advantage of a bout of lower prices around the $325 an ounce level -- some $60 off a recent 6-1/2 year high.
Gold buying in the world's biggest consumer India is likely to rise in coming weeks as the marriage season peaks. Jewellers were also replenishing stocks, which had fallen in the past two months as war jitters pushed prices up and deterred buying.
Gold demand in India rises during the Hindu marriage season, which runs from January to May, as parents buy jewelry gifts for their daughters to keep as financial security in a crisis.
Spot gold was trading at $332.55/333.30 an ounce at 1512 GMT, up on New York's close at $330.00/330.75.
Bullion was set or "fixed" in the London afternoon session at $332.75 an ounce, down from the morning fix of $333.15 as spot came off its session high of $334.
"Gold has fallen back to a level where physical demand is supporting the market, which is a good indication that the risk premium has mostly, if not entirely, left the market," said John Reade, precious metals analyst with UBS Warburg.
The price of the yellow metal has crept higher over the past two days as concern grows about the war in Iraq that U.S. President George W. Bush has said was "far from over."
Oil jumped, the dollar eased and European shares sank on Thursday as jittery investors swapped their money back into safe-havens such as gold and bonds.
"Gold is trying to take back some ground. I am looking for some gains today," a London bullion trader said, adding that he did not expect the metal to get much higher than $334.
Analysts expected gold to tread carefully, with participants unwilling to take on large positions amid much uncertainty concerning the outcome of the war.
"Short-term direction will be taken from the currency markets, while the longer term outlook for gold is uncertain and will remain so until the outcome of the current conflict is uncertain," Reade said.
The dollar weakened against major currencies on Thursday, ticking back toward its lowest levels since U.S.-led attacks against Iraq began eight days ago.
PALLADIUM STILL STRUGGLING
Battered palladium saw no respite from its weakness, hovering just $6 away from a recent 5-1/4 year low at $183. Spot was quoted at $192.00/202.00 an ounce, compared with the previous $192.50/197.50 New York close.
"Palladium is struggling as rising supplies from new mining projects and a sharp increase in reclaimed metal are likely to swamp the already saturated market," James Moore of TheBullionDesk.com said.
He predicted further losses if the metal, used mainly to clean car exhaust emissions, fell below $180 an ounce.
In other precious metals, silver chugged along in rangebound fashion, indicated at $4.40/42 versus New York's previous $4.39/41.
Platinum fell further in a mainly technical move, dropping to $636.00/641.00 from $645.90/650.90, although analysts felt physical interest around this level should steady the fall.
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