Gold steadied on Tuesday after earlier rallying to its highest in a week as data showing US producer prices and retail sales rose slightly more than expected in November lifted the dollar into positive territory. Spot gold was bid at $1,393.01 an ounce at 1454 GMT, against $1,393.15 late in New York on Monday. US gold futures for February delivery eased $3.50 an ounce to $1,394.50.
The precious metal earlier climbed more than 1 percent to a session high at $1,407.70 an ounce as the US currency wilted ahead of a US policy-setting meeting. Policy makers are expected to assess the Federal Reserve's $600 billion bond-buying plan at the meeting on Tuesday, but are not forecast to signal any shift or change in the programme. While it remains vulnerable to short-term currency gyrations, gold looks set to be firmly supported by caution on the global economic outlook.
"Gold is benefiting on the one hand from inflation-led buying in Asia, and from safe-haven-led buying particularly in North America where there is a lack of confidence in issues like the budget deficit being solved," said HSBC analyst James Steel.
"It is benefiting for different reasons in different regions." Gold has risen by over 6 percent so far this quarter, driven largely by fluctuations in the dollar and by concerns over the outlook for growth in the United States and the eurozone's deepening debt crisis.
The euro gave up early gains that had taken it to a three-month high against the US currency on Tuesday, while the dollar index, which measures the currency's performance against a basket of six others, moved 0.1 percent higher. Strength in the US unit usually weighs on gold, as it curbs the precious metal's appeal as an alternative asset and makes dollar-priced commodities more expensive for holders of other currencies.
However, a near half-percentage point rise in Treasury yields this month presents a serious challenge to investors in gold, which bears no interest and incurs a higher opportunity cost as returns on other asset classes increase. While dollar weakness usually acts as a catalyst for bullion buying, soft investor demand, as evidenced by continued outflows from some of the world's largest exchange-traded precious metals funds, could temper price gains in gold.
Silver gave up early gains in line with gold and was bid at $29.36 an ounce against $29.48, having earlier touched a high of $29.92. Britain's Financial Times newspaper reported on Tuesday that J.P. Morgan had cut a large position in the metal. The company's silver futures positions would be "materially smaller" in the future, the FT reported a source as saying.
Silver has been a major beneficiary of the investor push into commodities this year and the price is now holding around 30-year highs. But not all investors are as convinced that silver can maintain this performance. "It would seem as if investors are treating silver as a cyclically sensitive industrial metal during bullish periods and as a 'safe' precious metal during corrections," said asset manager Tiberius in its monthly update.
"Silver's fundamentals are poor, however, and we believe it will tend to underperform both industrial as well as precious metals in the months to come." Platinum also rose to a one-week high of $1,713.49, before easing to show a 0.2 percent loss on the day at $1,692.74, while palladium fell 0.4 percent to $751.47.
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