Gold rose more than 1 percent on Tuesday as the dollar and equity markets fell on signs the European Central Bank may not recur to more stimulus, while renewed tensions in Ukraine kept risk appetite subdued. The metal gained further support after Iraq's central bank said it might buy more gold in the next few months, having bought 60 tonnes over the past two.
Spot gold touched a two-week high of $1,314.43 an ounce in earlier trade and was up 1.1 percent at $1,310.30 by 1320 GMT. Gold futures for June delivery gained 1 percent to $1,311.20 an ounce. The technical picture seems to have improved over the past few sessions after prices crossed the $1,300 mark, but a failure to break resistance at $1,322 could signal a restart of downward pressure, analysts said.
The metal recovered 2.7 percent from a seven-week low of $1,277.29 early last week, when investors cut bullish bets on expectations that strong economic data out of the United States could prompt a quicker tightening of US monetary policy. The dollar fell 0.5 percent against a basket of currencies, mostly due to gains in the Japanese yen following the Bank of Japan's decision to hold off from additional easing and a stronger euro after the European Central Bank (ECB) again played down the need for any immediate policy action.
"The euro and the yen are strong against the dollar today and that is giving a boost to the gold price," MKS SA senior vice president Bernard Sin said. "In a scenario of heightened tensions in Ukraine, you have people who want to hedge against that risk," he added. "But I don't think that gold is going to run away because physical demand is not there to provide a further extension."
Ukraine has launched what it described as an "anti-terrorist" operation in the eastern city of Kharkiv and said about 70 separatists had been arrested for seizing the regional administration building. Gold is usually seen as an insurance against risk in times of economic uncertainty or global political troubles. The next market focus will be the release on Wednesday of US Federal Reserve minutes for the March FOMC meeting. The rise in bullion comes despite subdued demand in top buyer China, where prices have been at a discount for more than a month.
"Physical demand from China has been weak of late," Commerzbank said in a note. Chinese markets reopened after the Tomb Sweeping holiday on Monday, providing some support to prices. Traders said they noticed a small uptick in buying interest for gold, with Shanghai discounts to London prices narrowing from Friday's $2 an ounce to less than 50 cents on Tuesday.
Chinese gold prices have been at a discount to spot prices since early March, leading to lower imports. Among other precious metals, silver rose 1.4 percent to $20.09 an ounce, while platinum was up 0.9 percent at $1,434.24 an ounce and palladium gained 1.4 percent to $771.78 an ounce.
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