Gold rose almost 2 percent on Tuesday, hitting a two-week high at $1,120.75 an ounce, as the single European currency won respite from recent hefty losses against the dollar. While sentiment for the euro remained shaky overall - a factor that would normally undermine dollar-denominated bullion - analysts said the precious metal would find support amid fiscal worries about some euro zone economies, chiefly Greece.
Those concerns helped send euro-priced gold to a record high at 819.07 euros an ounce. Spot gold was bid at $1,117.90 an ounce at 1601 GMT, against $1,100.50 late in New York on Monday. US gold futures for April delivery on the COMEX division of the New York Mercantile Exchange rose $28.60 to $1,118.10 an ounce.
"Sovereign problems combined with a weaker dollar have given gold enough momentum to break the levels that will attract new buying," said Saxo Bank senior manager Ole Hansen.
"This morning we broke the downtrend from the December high at $1,106 and that has triggered technical buying, as the next target now is $1,126." Gold has risen steadily this week as investors concerned by the fiscal health of a number of smaller eurozone countries, including Greece, Portugal and Spain, bought the metal as a hedge against currency market instability.
Such fears, and persistent weakness in the single currency, pushed euro-priced gold to record highs on Tuesday. "Alongside long-term inflation fears, looming risks in the euro zone are obviously driving investors into gold, with Greece remaining the dominating theme," said Commerzbank in a note. "Greece's public-debt crisis, remaining a sword of Damocles, will drive investors to view gold as a safe haven again."
As well as euro-denominated gold, gold priced in sterling and South African rand also rose to one-month highs. Gold's current performance in dollar terms does not reflect the precious metal's true strength, analysts said. "International financial contagion remains a risk and the cost of insuring sovereign debt is rising for all countries internationally," said bullion trader GoldCore in a note.
"As long as there remains the risk of the ignition of what is being called the global debt time bomb, it is hard to see how gold will not remain in strong demand." Among other commodities, oil prices rallied 3.9 percent to $77 a barrel, responding to the euro's gains against the dollar and supported by tensions over pressure for more sanctions against Iran.
Elsewhere, holdings of the world's largest gold-backed exchange-traded fund, New York's SPDR Gold Trust, were steady on Monday, while gold demand in India, traditionally the world's biggest consumer, retreated. Silver was at $16.06 an ounce versus $15.52, having earlier touched a peak of $16.07, its strongest since February 4.
"The next big thing to keep an eye out for is silver," said Saxo Bank's Hansen. "$16 has gone, which could be the beginning of a silver fightback." Platinum at $1,536.50 an ounce versus $1,512.50 and palladium at $427.50 versus $418.50.
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