Gold rebounds on fund inflows and weaker equities

By Clara Denina

LONDON (Reuters) - Gold rose by about 1 percent on Tuesday as European shares fell and inflows into bullion funds continued, boosting to prices.

Assets in SPDR Gold Trust, the top gold-backed exchange-traded fund (ETF), rose more than 19 tonnes to 752.29 tonnes on Monday, the highest since March 2015.

The fund's inflows since the beginning of the year have already surpassed outflows for the whole of 2015.

Spot gold was up 1 percent at $1,220.15 an ounce by 1306 GMT. Prices had fallen 1.6 percent on Monday, when the dollar and equities rallied.

"If there is another big sell-off in equity markets, then levels around $1,260 are very achievable because you'd see defensive investors coming forward," said ETF Securities analyst Martin Arnold.

Bullion was boosted by European shares turning negative, dropping from the previous session's two-week high on disappointing earnings updates and lower oil prices.

The dollar fell from a three-week high and was down 0.1 percent against a basket of main currencies.

"But in an environment where volatility remains elevated and investors are starting to dip back into equity markets, current levels are a pretty decent value for gold," ETF Securities' Arnold said.

The volatility index, which measures implied volatility of stock options and is often seen as an investor fear gauge, fell below 20 percent this week.

Gold has gained about 15 percent since the beginning of the year, largely on the back of concerns over financial instability and economic growth that led to turmoil in international stock markets. It has also benefited from the repricing of expectations for U.S. interest rate rises.

The metal, however, could be vulnerable to more corrections if stock markets strengthen, analysts said.

Technically, the gold price should stabilise in the $1,200 to $1,192 an ounce area, Commerzbank analysts said.

Top consumers China and India have turned sellers of gold as prices have rallied. Discounts in India have hit a record high, while prices in China have also turned cheaper relative to the global benchmark in a sign of waning demand.Among other precious metals, silver rose by 0.3 percent to $15.21 an ounce after hitting a two-week low of $14.90 on Monday. Platinum was up 0.2 percent at $928.70, not far off a two-week low touched in the previous session, while palladium firmed 0.6 percent to $496.60.

(Additional reporting by A.Ananthalakshmi in Singapore; Editing by David Goodman and David Evans)