Gold Above $1,340 as US Stocks Slide on Egypt Protests..

Gold rose on Friday, recovering from a steep fall earlier after the U.S. economy expanded in the fourth quarter, while U.S. stocks fell as traders feared the outcome of the escalating protests in Egypt.

Spot gold [XAU=X  1341.3    29.06  (+2.21%)   ]was last near $1,344 an ounce, against $1,312.24 late in New York on Thursday.

U.S. gold futures [GCG1  1340.4    22.00  (+1.67%)  ] for February delivery were last near $1,339 an ounce.

The metal earlier touched a four-month low of $1,308.00 an ounce, having fallen 2.6 percent on Thursday on a run of firmer than expected U.S. economic data which boosted confidence in the recovery. Though gold later recovered, it still looks fragile.

The U.S. economy gathered speed in the fourth quarter with the biggest gain in consumer spending in more than four years and strong exports offering the clearest signals yet that a sustainable recovery is underway.

"Though the GDP data came in slightly below expectations... (its acceleration) was driven by two factors which are very important when looking forward, and that is the more important factor in assessing the future course of the U.S. economy," said Quantitative Commodity Research consultant Peter Fertig.

"That is private consumption and exports, which came in better than expected," he said. "With the Dow Jones index trading this week above 12,000, that all indicates that the U.S. economy is on an expansionary path."

The dollar extended gains versus the euro and trimmed losses against the yen in volatile trading on Friday after the data, while European shares lifted from lows and New York stocks opened slightly higher on Wall Street.

"One of the dangers in the gold price this year is that if confidence rises, and U.S. growth and the economic recovery continues, gold's allure as a hedge against risk is somewhat diluted," said VM Group analyst Carl Firman.

"At the moment you probably find that money is going into riskier assets, perhaps with higher returns."

ETF Investment Eases

Investment demand for gold has been soft this year, with holdings of the SPDR Gold Trust [GLD  130.87    2.945  (+2.3%)   ], the world's largest gold-backed exchange-traded fund, down another 3 tons on Thursday.

London's ETF Securities reported a 1.3-ton outflow from its gold exchange-traded products on the same day.

The Wall Street Journal said on Friday hedge fund SHK Asset Management liquidated a U.S. gold futures position this week valued at over $850 million, more than 10 percent of the main U.S. futures market.

While the outlook for ETF and futures investment is uncertain, physical demand for gold, particularly from Asia, is expected to be a major factor underpinning prices this year.

"The China Gold Association estimates... that the demand for gold in the first half of the year will rise by 15 percent year on year, citing growing demand for alternative investments and protection against inflation," said Commerzbank in a note.

"Already last year, China's gold demand posted double-digit growth, according to the World Gold Council," it said.

Spot silver [XAG=X  27.87    0.99  (+3.68%)   ] was bid at $27.39 an ounce against $26.88. Holdings of the world's largest silver-backed ETF, the iShares Silver Trust [SLV  27.275    0.985  (+3.75%)   ], fell to 10,426.43 tons on Thursday from 10,447.70 tons.

"Silver ETF holdings fell by 122 tons on the week (and) are down 550 tons from their peak," said RBS Global Banking & Markets in a weekly report. "ETF holdings represent 66 percent of 2010 world mine output."

Platinum was last near $1,799.49 an ounce against $1,781 and palladium last touched $811.50 against $802.22.