Gold jumped above $1,125 an ounce in Europe on Tuesday as the dollar extended losses versus the euro and oil rallied above $81 a barrel ahead of a key Federal Reserve announcement on rates later in the session. Spot gold hit a high of $1,125.60 an ounce and was bid at $1,122.25 an ounce at 1349 GMT, against $1,108.10 late in New York on Monday.
US gold futures for April delivery on the COMEX division of the New York Mercantile Exchange rose $17.30 to $1,122.70 an ounce. All eyes are now on the Fed. Most commentators expect the bank to leave interest rates at record lows, but its accompanying statement will be closely watched for clues as to the timing of a US rate hike. "Investors are likely to scrutinise the statements and any absence of the wording 'rates will stay exceptionally low for an extended period'," said Pradeep Unni, senior analyst at Richcomm Global Services.
Gold is sensitive to suggestions US interest rates may rise, which could benefit the dollar and raise the opportunity cost of holding non-interest bearing assets like bullion. Gold has also benefited from fears over the sovereign debt of major economies, after rating agency Moody's said on Monday risks to the blue chip status of the world's four largest triple-A sovereign debt issuers had grown.
"The alternative to investment in bonds, given the US TIC flows yesterday, is supporting the market for now," Saxo Bank senior manager Ole Hansen said, indicating data showing foreign investors were net sellers of US securities in January. On the physical market, premiums for gold bars in Asia jumped to their highest in more than a month as jewellers restocked and demand from main consumer India started to pick up ahead of the wedding season, dealers said on Tuesday.
India's retail gold buying continued on Tuesday as prices stayed in the vicinity of their recent lows, prompting consumers to buy for the new year festivals of Gudi Padwa in Maharastra and Ugadi in Karnataka, traders said. Among other precious metals, silver was at $17.37 an ounce against $17.05, outperforming gold. The gold-silver ratio dropped to a seven-week low of 64.46 on Tuesday, meaning silver is increasingly expensive compared with gold.
VTB Capital analyst Andrey Kryuchenkov said in a note that silver was benefiting both from hopes industrial demand will pick up as the economy improves, and from investment interest. Platinum group metals benefited from gold's strength, with platinum hitting a seven-week high at $1,627 an ounce before easing back to $1,623.50 an ounce against $1,620.50, and palladium was at $464 against $461.
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