Gold snaps two-day decline as equities retreat

By Jan Harvey

LONDON (Reuters) - Gold rose on Tuesday, snapping two days of losses and recovering from an early dive below $1,200 an ounce, as a retreat in stock markets from earlier highs boosted interest in the metal as a haven from risk.

European shares dipped 0.3 percent, even as oil prices gave up early gains after an agreement among four top producers to freeze output was judged unlikely to have a big impact on a global glut of crude. [MKTS/GLOB]

Spot gold was up 0.2 percent at $1,211.76 an ounce at 1302 GMT. It earlier fell as low as $1,190.40, having shed 2.3 percent on Monday, its biggest one-day loss since mid-July.

Gold hit a one-year high of $1,260.60 last week as worries over the global economy prompted heavy selling of assets seen as higher risk, such as stocks and cyclical commodities.

Heightened stock market volatility and fears that a slowdown in China could spill into the wider markets have led investors to cut the number of interest rate increases they expect from the U.S. Federal Reserve this year.

The prospect of higher U.S. rates was a key factor driving gold prices down 10 percent last year.

"It's really all about confidence here - confidence in the Fed, confidence in the PBOC, confidence in the ability of financial markets generally to withstand the kind of stress that they're under," ICBC Standard Bank analyst Tom Kendall said.

"To get gold to make sustainable gains above $1,250 and up towards $1,300, you do need that sense of fear and concern more widely to be sustained, and for assets like equities to come under even more stress."

A correction lower in gold prices had been expected after they rose quickly over a short period of time. The metal rallied $200 to last week's peak from its January lows, with last week being its best since 2011.

Goldman Sachs's recommendation to short gold, prompted by the bank's belief that the recent fear-induced rally has been overdone, fed into more cautious sentiment for the metal.

"Fears around China, oil and negative interest rates have likely been overstated in the gold price and other financial markets," it said in a Monday-dated note.

U.S. gold futures for April delivery were down 2.2 percent from late on Friday at $1,212.30. U.S. markets were closed on Monday for Presidents' Day.

Silver was flat at $15.33 an ounce, while platinum was down 0.1 percent at $931.50 and palladium was down 0.1 percent at $510.95.

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