By Amanda Cooper LONDON, Nov 14 (Reuters) - Gold fell on Monday, under pressure from a stronger dollar, which gained after initial optimism over the ability of Italy and Greece to tackle their debt burdens gave way to caution, while euro-priced bullion neared two-month highs. Decent demand for Italian bonds was not enough to provide the European equities market with relief, while German Bund prices recovered from session lows. Yields on the benchmark 10-year Italian bond eased this week, having last week broken above the 7-percent "danger zone" that analysts widely believe makes the cost of servicing Rome's debt burden unsustainable. Gold priced in euros rose for a second day, edging above 1,300 euros an ounce within sight of last week's two-month highs, while gold priced in dollars was down 0.4 percent at $1,778.44 an ounce by 1443 GMT, under pressure from a 0.7 percent rise in the U.S. currency. Gold's correlation with the dollar index is close to its most negative in a year, meaning the bullion price is more likely to move inversely to the U.S. currency, while its correlation to European equities is near its most positive for a about a year. "It's not obvious to us that gold is behaving as a safe-haven store of value at all at the moment, it does appear to be behaving like a commodity that benefits from liquidity and doesn't necessarily benefit from any potential catastrophe in Europe," Nic Brown, head of commodity strategy at Natixis said. "It's not obvious that this period of extreme risk aversion has come to an end, is that what the market is trying to tell us? Or is it more a case that the market has decided if this is a European problem, then the safe-haven store of value is the dollar." That said, there has been been plenty of evidence of investor confidence in gold. The U.S. options market shows most investors are positioned for a rise in the gold price to $2,000 an ounce or beyond by the end of this year, while exchange-traded funds backed by gold bars saw their largest weekly inflow of metal in more than two months last week. "I get the feeling there is a dribbling-in of money into gold," Credit Agricole analyst Robin Bhar said, adding that while the price was vulnerable to corrections, ultimately, evidence seemed to point to ongoing demand for bullion. "Speculative positioning is probably winning out against everything else and if we can move from where we are now, we may see a rally higher, then it probably is worth going long, maybe through some portfolio diversification and ETF buying. That all seems to be playing into it." U.S. investment bank Goldman Sachs said on Monday it was maintaining a long position in gold based on its expectation for U.S. interest rates to remain low for longer than originally anticipated. "We expect gold prices to continue to climb in 2011 given the current low level of U.S. real interest rates. Further, with our U.S. economics team now forecasting slower U.S. economic growth in 2011 and 2012, we expect U.S. real interest rates to remain lower for longer, supporting higher gold prices through 2012," Goldman Sachs said in a note. NO SOLUTION YET Although Italy and Greece have embarked on a painful journey towards solving their debt problems, the euro zone debt crisis is nowhere near an end, which could support long-term gold prices. "In the longer term there is still a lot of uncertainty, such as the many challenges Italy faces as to how the new government will implement harsh reforms," said Ong Yi Ling, an analyst at Phillip Futures. "The overall backdrop remains supportive of safe haven demand in general." Reflecting this demand for bullion, global holdings of gold in ETFs increased by nearly 897,000 ounces last week to 68.854 million ounces and November is shaping up to show the largest monthly inflow since July, with a net inflow of 947,000 so far this month. Physical market activity in Asia was muted, after last week's 2 percent rise in the price sidelined buyers, dealers said. Premiums in Hong Kong and Singapore were little changed from last week. Platinum was the top performing metal among the precious complex, with a 0.2 percent gain on the day that took the price to $1,638.74 an ounce. So far this month, the platinum price has risen by nearly 3 percent to near two-month highs. Palladium rose 0.1 percent on the day to $656.72 an ounce, while silver fell 1.1 percent to $34.23 an ounce.

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