Gold hits 2-month high as stocks, dollar retreat

LONDON, June 24 (Reuters): Gold hit a two-month high on Tuesday and silver reached its highest since mid-March as a drop in European shares after soft German economic data and a weaker dollar helped the metal build on last week's gains.
Spot gold hit a peak of $1,325.70 and was up 0.5 per cent at $1,323.80 an ounce at 1007 GMT, while US gold futures for August delivery were up $6.60 at $1,325. Silver was up 1.3 per cent at $21.09 an ounce.
Gold posted its biggest weekly rise in three months last week as the threat of escalating tensions in Iraq and the Federal Reserve's lack of commitment to raising interest rates sparked a wave of short covering.
"There are still willing buyers today as there are shorts left, and risk aversion sees fresh inflows," VTB Capital analyst Andrey Kryuchenkov said.
"The greenback is slightly weaker today, while European equities are extending losses from yesterday," he added. "Low volumes and technical trading will prevail this week since there is little else aside form Iraq to drive the market, with hardly any physical flows at the moment."
Gold has been boosted recently by escalating violence in Iraq, where Sunni tribes have joined a militant takeover of northern Iraq. Oil prices were pushed to 9-month highs last week, with a consequent knock-on effect on gold.
Oil slipped below $114 a barrel on Tuesday as concerns eased that escalating violence in Iraq will affect supplies from OPEC's second-largest oil producer.
Supporting gold, European stocks retreated on Tuesday, surrendering early gains, as investors were unnerved by growing signs of economic weakness in Europe.
Germany's Ifo index of business sentiment fell more than expected in June, eating into gains across Europe's major stock markets that had been racked up on merger and acquisition talk.