Gold prices rose in choppy trade early on Thursday, rebounding after the previous sessions' losses, helped by a bounce of US Treasury prices and as a dollar rally lost momentum. Benchmark Treasury yields fell from a six-month high after a successful 30-year bond auction, retracing the dramatic sell-off earlier this week fuelled by inflation and deficit fears on a deal to extend federal tax cuts.
The dollar also erased initial gains as Treasury yields fell, after rising in the previous sessions on hopes of improving US economic growth on the tax stimulus. Gold has reasserted its role as a safe haven after the combined effect of rising US short-term interest rates and a stronger dollar prompted profit-taking in the past two days.
"If people don't have confidence in the value of the currency, it doesn't matter if Treasury yields go up. Because, if the currency is going to lose value, the yield has to go up significantly to compensate for any ... declining value of the dollar," said Miguel Perez-Santalla, vice president of sales of Heraeus Precious Metals Management in New York.
Spot gold rose 0.7 percent to $1,391.65 an ounce at 1:06 pm EST (1806 GMT). US February gold futures rose $10.10 to $1,393.30 an ounce. Gold hit its record $1,430.95 an ounce on Tuesday, fuelled by a flurry of fund-buying ahead of the year-end and a resurgence in risk aversion stemming from Europe's deepening debt crisis, which has pummelled the government bonds of the eurozone's most economically fragile members.
With the 3 percent decline over the past three days, however, physical demand has resurfaced, particularly in Asia, where premiums for physical delivery in Hong Kong held steady, while scrap supply was muted. Spot silver rallied 1.8 percent to $28.84 an ounce, after declining to a one-week low of $27.96 on Wednesday. Platinum fell 0.3 percent to $1,676 an ounce, while palladium rose 2.1 percent to $739.22, taking some heart from the rise in other industrial commodities such as crude oil and base metals.