Gold rose for a second consecutive session on Tuesday, extending the previous session's rally, as strong physical demand and a weaker dollar amid economic optimism lifted the precious metal. Bullion - a traditional safe haven which has recently followed riskier assets - climbed in tandem with equities for a second day as a rebound in US consumer confidence and new optimism in Europe increased investors' appetite across the board.
Analysts said economic uncertainty also underpinned gold, as eurozone ministers struggled to boost their rescue fund and looked to the IMF for more help after Italy's borrowing costs hit a euro lifetime high of nearly 8 percent. "It's all the macroeconmic events that are driving every single market including gold, not market fundamentals" said Ron Lawson, partner of commodities investment firm LOGIC Advisors. "The fundamental reasons for owning gold are as good today as they were when gold was trading $300 to $400 lower." Spot gold was up 0.3 percent at $1,715.55 an ounce by 12:43 pm EST (1743 GMT).
Overall market liquidity in US gold futures fell to its lowest level since April, data from the US futures regulator showed. Open interest dropped to a seven-month low during the week ended November 22, US Commodity Futures Trading Commission (CFTC) figures showed, as managed money including hedge funds and other speculators trimmed its net long position in gold futures and options as some investors were turned off by counterparty risk after the demise of the now-defunct futures broker MF Global.
Meanwhile, gold holdings in exchange-traded funds hit a new record high last week, rising by more than 2.2 million ounces in just one month to around 70 million ounces, almost equivalent to total mine supply this year. US December gold futures were up $2.80 at $1,713.60 an ounce. Volume was in line with its 30-day average, preliminary Reuters data showed, boosted by a brisk contract rollover ahead of December's first-notice day on Wednesday, traders said.
Trading volume often rises as futures investors roll their positions forward ahead of first-notice day. This is because the closing out of the December contract and the initiation of the new benchmark February is showing up as two lots traded on exchange data.
Gains in commodities across the board led by crude oil and grains also helped lift gold. Record retail sales after the US Thanksgiving Day holiday last week underscored resiliency in the US consumer sector and the world's No 1 economy. "Strong retail sales on Black Friday imply good gold and silver jewellery demand. Jewellery traditionally is an important part of seasonal purchases, and the US is an important consumer of gold and silver jewellery," said HSBC metals analysts James Steel.In other precious metals, silver was down 0.2 percent at $32 an ounce. Platinum eased 0.1 percent at $1,541.40 an ounce, while palladium was up 1.6 percent at $581.97 an ounce.
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