Gold prices in New York rose almost 2.5 percent on Wednesday as the dollar tumbled on expectations that the Federal Reserve would show restraint in raising interest rates.
"It's dollar driven. But at the same time there seems to be an underlying sentiment toward higher prices," said Bernard Hunter, a director at bullion dealer ScotiaMocatta in Toronto. "There's been fairly continuous fund buying. The economic data out of the States remains inconsistent enough to at least maintain support for the gold."
Comex August gold settled up $9.70 at $402.70 an ounce, reversing a $5.70 loss on Tuesday. For the day, it traded from $392.40 to $404.00, its highest since June 28.
"It was oversold yesterday, and it's just some short covering buying it back," said a floor broker.
The dollar hit its lowest price in more than three months at $1.2389 per euro on Wednesday, as traders bet that mixed US data and high oil prices would dissuade the Fed from raising interest rates too aggressively. It hiked them for the first time in four years last week.
With a weaker dollar, overseas investors can leverage strengthened currencies to buy more gold.
Still, gold prices this week have been very volatile, mostly because players are starting to take it easy during the summer months.
Gold is seen as a safe haven while the new interim government in Iraq struggles to contain an insurgency that has killed many Iraqis and hundreds of US and foreign troops and civilian reconstruction workers in the past year.
It has also been lifted by recovering oil prices. Gold has allure as an asset that holds its value against inflation and a depreciating dollar.
Oil prices neared $40 a barrel overnight for the first time in a month, before falling back after Iraq repaired a sabotaged pipeline and brought crude exports nearly back to normal levels.
August gold exceeded the high hit Friday at $401.50 an ounce amid dismay over a smaller-than-expected rise in June payrolls that day.
It got a technical boost Wednesday in breaking above the 100- and 200-day moving averages, which intersected this week around $399.70 an ounce.
"A lot of people were probably looking at that and that may explain some of the short covering above the $400 level," Hunter said.
Spot gold rose to $402.00/2.75 by late New York trade from $392.30/2.80 at the previous close. Wednesday's afternoon fix in London was $399.65.
September silver rose 14.5 cents following gold's move, settling at $6.125 an ounce. It traded from $5.985 to $6.16. Spot silver last fetched $6.10/13, up from $5.95/97. The daily fix was $6.035.
Nymex October platinum went up $20 to $790.90 an ounce. Spot fetched $793/798. September palladium rose $4.85 to $225.90 an ounce. Spot was quoted at $220.50/226.50.