Gold prices were on course for their biggest monthly rise since August on Tuesday, boosted by economic unease in Europe and the United States and raising the possibility of a climb toward last year's record high of just over $1,900 per ounce. 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 in an investor dash 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. Gold was up 0.8 percent at $1,742.59 an ounce by 1523 GMT, having earlier touched $1,747.39 - its highest since mid-December and up some 11 percent on the month to date.
Currency fundamentals turned against the market, with the euro knocked by weaker-than-expected US consumer confidence. A stronger dollar makes gold dearer for holders of other currencies. But the surprisingly weaker US data, concerns that Portugal could follow a similar path to Greece plus figures pointing to a poor first quarter in the euro zone were supportive for gold.
More broadly, bullion was benefiting from a favourable monetary policy backdrop, with a jump of almost 5 percent last week after the US Federal Reserve pledged to keep interest rates near zero until at least late 2014. "There's been a lot of money put to work here during January. Gold was at the beginning of the year one of the few commodities that everyone felt would be a good performer and people have been investing accordingly," said Ole Hansen, senior manager at Saxo bank.
"With gold starting 2012 at a cracking pace ... gold may be poised to set fresh highs this year but much earlier than many - ourselves included - would have expected." Ross Norman, chief executive of Sharps Pixley, said in a note. Gold has gained for the last four weeks, with a spike in prices before the Lunar New Year holidays being driven partly by Chinese buying.
The most active US April gold contract rose $13.40 an ounce to $1,744.40 an ounce. Silver added 1 percent to trade at $33.79 an ounce after rising to $34.08, its strongest since mid-November. Platinum and palladium also firmed. Holdings of the world's largest silver-backed exchange-traded fund, iShares Silver Trust rose about 1 percent to 9,608.95 tonnes by Monday, from 9,510.70 tonnes on Friday.
Traders and investors were also watching for further developments at South African miner Impala Platinum. It said on Monday its Rustenburg operations remained shut after the majority of workers staging an illegal strike over wages failed to return to work.