(Reuters) - Gold prices firmed in Europe on Tuesday as the dollar retreated to a one-month low against a basket of currencies, hurt by warnings from a Chinese foreign exchange official of the risks of excessive dollar holdings.
Spot gold was bid at $1,547.95 an ounce at 1006 GMT (5:06 a.m. ET), against $1,543.05 late in New York on Monday. U.S. gold futures for August delivery rose $1.90 an ounce to $1,549.10.
The metal rose toward $1,550 an ounce on dollar weakness after the head of the international payment department at China's foreign exchange regulator said China should guard against risks from excessive holdings of dollar-denominated assets.
"This last move this morning from the low $1,540s to almost $1,550 is mainly on the back of dollar weakness, which has been consistent since Asia came in this morning," said Standard Bank analyst Walter de Wet.
"We think we're going to break above $1,550 and test the all-time highs," he added. "Some of that is on expectations of more euro strength relative to the dollar following the ECB meeting on Thursday. We think the ECB is going to be fairly hawkish."
Gold tends to have an inverse relationship to the dollar, because it becomes cheaper for holders of other currencies when the U.S. unit weakens, and it is sometimes bought as an alternative asset.
Expectations the European Central Bank will be quicker to raise interest rates than the Federal Reserve has led the euro to rise nearly 10 percent relatively to the dollar this year.
BERNANKE SPEECH AWAITED
The Fed is expected to keep rates low for a protracted period as the U.S. economy struggles to recover from recession. U.S. stock markets fell to 2-1/2 month lows after last week's weaker-than-expected non-farm payrolls data. .N
Fed Chairman Ben Bernanke's speech later on Tuesday on the U.S. economic outlook will be closely watched for clues as to future policy. Bernanke will be speaking at 1945 GMT (3:45 p.m.) in Atlanta.
Physical gold demand is also holding up strongly despite near-record prices, analysts said, particularly in the Asian markets, where appetite for gold has typically been sharpest.
UBS analyst Edel Tully said in a note that purchasing in the world's biggest gold market, India, was becoming less seasonal.
"Last week ... our sales to the region were somewhat above average - not spectacularly so, but in the past we would have expected gold sales to be running well below average at this time of year, particularly with the gold price above $1500," she said.
"As gold enters what has traditionally been its season of weakest physical demand, this is positive news."
Silver was at $37.15 an ounce against $36.73, tracking gains in gold.
Austria-based hedge fund Superfund on Tuesday that it expected silver to retain its status as a star performer among precious metals in the next couple of years due to its leverage to gold and favorable technical outlook.
Platinum was at $1,822.49 an ounce against $1,805.30, while palladium was at $805.72 against $784. Palladium prices earlier hit three-month highs at $807.22 an ounce.
