Gold gains as stocks slide on Deutsche Bank worries

By Swetha Gopinath

(Reuters) - Gold rose on Friday as concerns about Deutsche Bank triggered a sharp sell-off in equities which undermined risk appetite, but a higher dollar limited gains.

Spot gold was up 0.48 percent to $1,326.41 an ounce by 1005 GMT. Gold has gained one percent so far this month, partly because of the weaker dollar after the U.S. Federal Reserve chose not to raise interest rates.

U.S. gold futures were up 0.29 percent at $1,329.80 an ounce.

A report that a number of hedge funds had withdrawn excess cash from Deutsche Bank reinforced worries about Germany's biggest lender.

The pan-European STOXX 600 index was down nearly 1 percent, having earlier fallen to its lowest point since early August. [.EU]

"If there is a rush to safety, then gold is a top contender," said Hamza Khan, head of commodities strategy, at ING. "There are also fundamental drivers supporting gold prices, including demand from the Russian and Chinese Central banks and uncertainty about the U.S. Federal Reserve raising rates."

Gold is highly sensitive to rising U.S. interest rates, as these increase the opportunity cost of holding non-yielding bullion, while boosting the dollar and making commodities more expensive for non-U.S.-firms.

The focus will be on U.S. data and a better-than-expected personal consumption expenditure (PCE) deflator -- the Federal Reserve's favourite inflation gauge -- could fuel further dollar gains.

Analysts are also watching U.S. Treasury bond yields for clues to the direction of gold prices.

"There have been periods when gold rallied in spite of Fed policy tightening and periods when gold came under pressure," UBS analysts said in a note.

"What ultimately matters for gold are real rather than

nominal yields ... While we expect the Fed to hike rates in December, we continue to think U.S. long-end real yields have room to fall further, supporting our positive gold view."

Silver was up 1 percent at $19.27 an ounce.

Platinum was up 0.32 percent at $1,029.99 an ounce and palladium rose 0.88 percent to $718.30. Palladium touched a 7-week high of $721.30 on Thursday.

(Additiona reporting by Nallur Sethuraman in Bengaluru; Editing by Ruth Pitchford)