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Gold prices rose above $1,110 (U.S.) in Europe on Tuesday, extending the previous session's 2 per cent gains, as the U.S. dollar weakened versus the euro, prompting buying of the precious metal as an alternative asset.

Spot gold was bid at $1,112.60 an ounce at 1031 GMT, against $1,105.30 late in New York on Monday. U.S. gold futures for February delivery on the COMEX division of the New York Mercantile Exchange rose $7.70 to $1,112 an ounce.

Gold is recovering some of last week's losses after the euro regained some lost ground against the dollar. Strength in the U.S. unit makes dollar-priced commodities more expensive for holders of other currencies.

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"The recent gain of the last two days has been largely dollar-driven," said RBS Global Banking & Markets analyst Daniel Major. "After dollar strength last week, we have had a bit of a recovery in the euro."

He said an outflow of investment from gold exchange-traded funds was a risk factor for prices.

"After having very impressive inflows during most of last year, we saw 23 tonnes of redemptions from the family of gold exchange-traded funds in January," he said. "That is not particularly positive."

Holdings of the world's largest gold ETF, New York's SPDR Gold Trust , were unchanged on Monday, but fell 21.7 tonnes in January, against a rise of 63.36 tonnes in the same month a year before.

The U.S. dollar edged lower versus the euro and weakened a touch against a basket of major currencies on Tuesday.

Currency traders are awaiting the appearance of White House adviser Paul Volcker before the Senate Banking Committee at 1430 GMT to defend the administration's proposal to curb risk-trading by banks, which sparked a wave of risk aversion last week.

Oil Firms

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The financial markets are also awaiting key U.S. non-farm payrolls data and interest rate decisions from the European Central Bank and Bank of England later in the week.

Among other commodities, oil prices rose nearly 1 per cent, while base metals prices firmed. Gold tends to track crude prices, as the metal can be bought as a hedge against oil-led inflation.

Elsewhere silver was bid at $16.74 an ounce against $16.64. The largest silver-backed ETF, the iShares Silver Trust , reported a 29-tonne outflow on Monday.

Platinum was at $1,555 an ounce against $1,548.50, while palladium was at $435.50 against $428.50.

The head of miner Anglo American said on Monday that South Africa's mining sector needs to work closely with utility Eskom to find ways of cutting power consumption in the face of planned steep rises in electricity prices.

Anglo American is the parent company of the number one platinum miner Anglo Platinum. Analysts have pointed to potential power-related constraints on supply as a possible supportive factor for platinum prices this year.

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Societe Generale said in a report late on Monday that it sees platinum at an average $1,565 in 2010, with further gains capped in part by weakness in jewellery demand.

"We continue to expect some further mild price strength in the second quarter of the year as the auto sector in particular continues to recover," it said.

"But - subject of course to potential stresses in the South African mining sector in particular - we adhere to our view that the re-rating of platinum's price, with its doubling from its late 2008 low, is complete," it added.

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