Gold firmed on Tuesday as the dollar weakened against the euro, boosting interest in the precious metal as a currency hedge. Spot gold was bid at $953.70 an ounce at 1428 GMT, against $950.05 an ounce late in New York on Monday. It earlier touched a high of $961.60, but pared gains as the euro retreated back below the $1.40 level.
US gold futures for June delivery on the COMEX division of the New York Mercantile Exchange rose $2.60 to $954.30 an ounce. The dollar fell as stock futures rose and investors questioned whether the US economy is strong enough to justify higher interest rates by the year's end, with the euro breaking briefly through $1.40.
"It has been all about the dollar," said Calyon analyst Robin Bhar. "It has almost been blow for blow as the dollar/euro has weakened steadily and gone through that 1.40 level." Gold is often bought as a hedge against currency weakness, and all dollar-priced commodities become cheaper for holders of other currencies as the US unit loses value.
The metal is likely to spend some time consolidating above $950 an ounce after sliding 3 percent in the last two sessions, but underlying interest in gold as a hedge against currency weakness and prospective inflation remains firm, analysts said. A clearing out of weak long positions - speculative positions on New York's COMEX exchange - from the gold market has given it a stronger base for gains, Gerry Schubert, head of precious metals at INTL Commodities, said.
"The most important point is that we have seen some long liquidation that we needed to see," he said. "The whole picture looks a lot healthier than it looked five, six days ago." Buoyant commodity prices helped lift European shares. US stocks also opened higher, although they later pared gains.
Physical demand remained relatively quiet, with the market dominated by investment buying. In India, the world's largest bullion market, high prices kept traders on the sidelines as the wedding season approached its end. Boosted by higher gold prices, silver outperformed, rising to $15.12 an ounce from $14.91, having earlier jumped as much as 2.9 percent.
In a rising market silver is attractive as a cheap alternative to bullion, said Calyon's Bhar. Among other precious metals, platinum was at $1,246 an ounce against $1,242, while palladium was at $251 against $247.50. ETF Securities said holdings of its ETFS Physical Platinum exchange-traded fund rose nearly 16,000 ounces or 5.1 percent on Monday, suggesting firm investor interest in the metal.