Gold traded nearly flat early on Tuesday, but the precious metal is heading for its biggest monthly rise since August on global economic unease and the US Federal Reserve's long-term outlook for near-zero interest rates. Bullion erased initial gains as the euro dropped amid renewed Greek debt concerns and as US equities fell on disappointing consumer confidence, Midwest business activity and falling home prices.
Gold is up 10.5 percent in January, as a lack of progress in resolving the European debt crisis pulled in investor. Also, supportive was the Fed saying last week it was ready to offer the economy extra stimulus and would likely keep rates near zero until at least late 2014.
"Clearly, Bernanke last week was leaving the door open for another round of potential asset buying. With the softer-than-expected consumer confidence data, we could see a move in coming months into that direction which supports gold," said Peter Buchanan, senior economist at CIBC World Markets. Gold was up 0.2 percent at $1,732.76 an ounce by 12:27 pm EST (1727 GMT), having earlier touched $1,747.39 - its highest since mid-December.
US gold futures for April delivery were up $1.10 at $1,735.50 an ounce. April was about $15 off their session high partly due to selling pressure related to February's first-notice day, traders said. "It's the end of the month after a great run-up," said COMEX gold options floor trader Jonathan Jossen.
There was heavy trading in a bullish option strategy known as a butterfly, where investors buy one August $2,000 call, sell two $2,200 calls and buy back one $2,400 call, Jossen said. On the other hand, TD Securities strategists said in a note that investors could benefit from buying out-of-the-money call options in the six-month time frame, as implied volatility, or vol, is expected to pick up again in the near term. One-month at-the-money volatility was at 17.9 on Monday, sharply lower than 37 in September 2011, Reuters data showed.
"Vol is lower everywhere in other markets. Investors are not really worried, and there is no 'crisis vol' to be bought," Jossen said. Gold's initial gains based on market optimism faded a day after Europe's leaders met at a summit to try to shift the economic debate from fighting a deepening debt crisis to reviving growth. Sentiment for gold at the end of January compares starkly with late December, when prices dropped by more than 10 percent in their biggest monthly fall since the collapse of Lehman Brothers as investors dashed for cash.
A $400 price drop from last September's record $1,920.30 had left investors questioning whether gold had ended an 11-year rally. Silver was 0.9 percent lower at $33.16 an ounce. Platinum was down 1.4 percent at $1,587.19 an ounce, while palladium eased 20 cents at $683.50.