GOLD held near record highs on Friday as euro zone sovereign debt concerns, worries over inflation and expectations US interest rates will stay low all conspired to support the precious metal. Gold and silver retreated a touch after a decision by rating agency Moody's to cut Ireland's debt rating to just above junk pressured the euro, but remain firmly underpinned. Silver is holding near its earlier 31-year high at $42.64.

Spot gold was at $1,477.50 an ounce at 1117 GMT, versus $1,472.90 late on Thursday, having earlier hit a record $1,479.01. Silver was at $42.56 an ounce against $42.08. US gold futures for June delivery rose $6.20 to $1,478.60.

The euro fell after Moody's cut Ireland's sovereign rating and left the outlook negative. Consequent gains in the dollar, which make assets priced in the unit more expensive for other currency holders, curbed gold's rise. While the initial impact of the move on currencies has taken some of the wind out of gold's sails, euro zone debt fears are likely to support prices in the long run. "The market has been reacting to (the credit issues in peripheral Europe) by looking for ways to protect themselves from these types of risks, and gold is seen as a way to do that," said Deutsche Bank analyst Daniel Brebner.

He said the main impact on gold of elevated debt levels in Portugal, Greece, Ireland and Spain came from the ways in which euro zone authorities addressed the issue. "Do we see a bailout, do we see more money being extended into these countries, do we see monetary accommodation remaining very much the bias in Europe?" he said. "If that's the case, that should be very supportive of gold markets."

European shares dipped after the downgrade, while the cost of insuring against a default by Greece and Ireland rose on growing speculation Greece will eventually have to restructure its debt and after the Moody's downgrade.

DEVELOPING WORLD INFLATION RISES

China and India reported higherthan-expected inflation readings on Friday, giving fresh ammunition to central bankers and investors alike, who are worried about mounting price pressures. Gold, which is often seen as a hedge against inflation, would likely benefit if inflation pressures rise. Among other commodities, oil prices eased as the dollar firmed, although they remain near multi-year highs as fighting in Libya continues, supporting fears output could be hit. Stronger oil prices also tend to benefit gold prices.

Goldman Sachs recommended investors go underweight commodities over a 3-6 month horizon. Reuters