Gold rose about 1 percent on Monday as a combination of optimism for talks to solve the US fiscal crisis and hopes that Greece will receive more funding fuelled buying in bullion as well as in equities and other commodities. The metal has recovered all of last week's losses that were blamed on fears of a global recession.
Signs that top Democratic and Republican lawmakers were confident they could reach a deal to avert tax hikes and spending cuts boosted gold's inflation-hedge appeal. Economists said that a failure to reach an agreement could threaten to send the US economy back into recession when the automatic tax and spending moves come into effect in the new year.
Monday's better US home resales pointed to a brighter economic outlook. However, traders said economic activities have not improved enough to justify a tightening in US monetary policies, especially after Federal Chairman Ben Bernanke's conservative outlook on housing recovery last week. "Overall, some of the underlying things are only starting to heal in the economy, and it appears that will keep monetary policy accommodative, which will reflect in higher gold prices," said Axel Merk, chief investment officer of Merk Funds, which has about $600 million in assets under management.
Spot gold rose 1.2 percent to $1,733.56 an ounce by 12:22 pm EST (1722 GMT). Monday's gains appear set to challenge key technical resistance of the 50-day moving average at around $1,742 an ounce, which bullion has not breached in almost a month. A drop in the dollar against the euro also lifted investors' risk appetite. There were positive signs that the euro zone would agree next week on two years of funding for Greece and leave further help to be decided later. Also underpinning gold is escalating conflicts between Israel and Hamas in the Gaza strip. Analysts said safe-haven bids and higher crude oil prices due to geopolitical tensions are clearly benefiting the metal.
US COMEX gold futures for December delivery climbed $19.20 to $1,733.90 an ounce, with trading volume on track to finish below its 250-day average, preliminary Reuters data showed. Spot silver rose 2.7 percent to $33.09 an ounce. Platinum group metals also rallied on expectations of better demand from the auto sector. Platinum rose 1.2 percent to $1,572.50, while palladium gained 2.3 percent to $641.72.
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