Gold extended gains above $1,390 an ounce in Europe on Monday as the dollar surrendered early gains against the euro, and as last week's price dip of more than 2 percent brought physical buyers back to the market. Concern over the outlook for the eurozone is also lending support to the precious metal, which is often seen as a safe store of value, analysts said.
Spot gold was bid at $1,393.35 an ounce at 1225 GMT, against $1,383.15 late in New York on Friday. US gold futures for December delivery rose $7.50 an ounce to $1,391.80. The precious metal rose to a record high at $1,430.95 an ounce last Tuesday but quickly surrendered gains to end the week down 2.2 percent. Its retreat has awoken fresh appetite from the metal among jewellers and physical investors, analysts said.
"Bullish momentum is still very much (intact), with reports of impressive physical demand from key consuming countries," said Pradeep Unni, senior analyst at Richcomm Global Services. The precious metal extended early gains as the euro moved back into positive territory against the dollar, rising 0.3 percent after five straight sessions of losses.
Weakness in the US unit usually lifts gold, as it raises the metal's appeal as an alternative asset and makes dollar priced commodities cheaper for holders of other currencies. Sharper risk appetite after upbeat US and Chinese economic data lifted equity markets and industrial commodities like copper, which touched a record high, on Monday.
US Treasuries prices fell sharply in Europe on Monday, driving benchmark 10-year yields to six-month peaks, as investors sold the bonds in anticipation of higher growth and deeper deficits in the United States. "Gold has been highly correlated to the direction of US 10-year Treasury yields over the past week," said UBS analyst Edel Tully. "The direction of Treasury yields will continue to influence gold's direction this week."
"Rising bond yields are not a typical breeding ground for a higher gold price, but the recent strength of that correlation is perhaps exaggerated by investors taking the opportunity to bank profits before year-end," she added. Gold also remains well supported near $1,400 an ounce by ongoing concerns over the health of the eurozone.
A meeting of European Union leaders later this week is set to pave the way for private sector investors to shoulder losses in case of a sovereign debt restructuring, but delegates remain divided on more concrete steps to shore up the region. "Lingering sovereign debt concerns in Europe and rising inflationary pressures in China are expected to underpin continued investment demand," Morgan Stanley said in a note.
On the investment side of the gold market, holdings of the world's largest gold-backed exchange-traded fund, New York's SPDR Gold Trust, declined by a further 3.95 tonnes on Friday. The trust saw outflows of 8.2 tonnes of metal last week, or 0.6 percent of its total gold holdings, its biggest one-week outflow since early October. It is still the world's sixth-largest holder of gold, ahead of Switzerland and Japan. Elsewhere, silver was at $29.45 an ounce against $28.55, platinum was at $1,691.24 an ounce versus $1,665.10, and palladium was at $749.97 versus $728.28.
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