Gold prices rose 1 percent early on Tuesday on heightened investor uncertainty after the leaders of France and Germany said they would push for closer joint governance of economic policy and float proposals for a tax on financial transactions.
Bullion extended gains on renewed fears about a European debt crisis after French President Nicolas Sarkozy and German Chancellor Angela Merkel proposed that all 17 eurozone countries commit to balanced finances and write that goal into their constitutional law by summer 2012. Earlier in the session, gold had already benefited from a flight to safety as global equity markets were trading sharply lower as weak German growth data renewed fears about the eurozone debt crisis and the global economy.
"At the end of the day, it (Sarkozy-Merkel news) is going to put worries back into the market about the euro and eurozone that may have been quieting down. It's going to add additional volatility into the gold market," said Frank McGhee, head precious metals trader of Integrated Brokerage Services LLC.
Spot gold was up 1 percent at $1,782.60 an ounce by 1:11 pm EDT (1711 GMT), partially recouping a correction it began late last week after hitting a record $1,813.79 on Thursday. It is up 25 percent this year driven by worries over US and eurozone debt levels.
US gold futures for December delivery was up $27.70 at $1,785.70 an ounce. Buying sentiment also improved on news the largest gold fund players, including hedge fund titan John Paulson, stuck with their bullion bets in the second quarter, data showed on Monday.
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