Gold prices rose early on Thursday in line with stocks and other commodities, further retracing the previous day's sharp fall, as renewed optimism that a deal will be reached to resolve the US fiscal crisis boosted appetite for assets seen as higher risk.
Spot gold was up 0.4 percent at $1,725.76 an ounce at 1542 GMT, after tumbling 1.3 percent in the previous session due to a heavy bout of stop-loss selling. US gold was up$9.00 an ounce to $1,725.50. UBS said in a daily market note that despite the selling on Wednesday, it had observed little client appetite to follow the trend, suggesting that gold remained well supported.
"We don't think anything has materially changed for gold," it said. "Essentially the metal is back to where it was trading last week. This is another test of downside buying interest but it also highlights the commitment issues that reside when the market attempts to climb higher."
Gold prices found good support at $1,720 an ounce, a key retracement of the decline from its October high of $1,795.69 an ounce to its November low at $1,672.24, and the location of its 30-day moving average. Dealers said cheaper gold prices after the technically driven sell-off on Wednesday augured well for increased buying of physical metal.
Gold importers in India, the world's biggest buyer of the metal, sprang back in action, accumulating stocks in small quantities, as prices fell to hit their lowest in nearly two weeks.
Holdings of the SPDR Gold Trust, the world's biggest gold-backed exchange-traded fund, hit a record high for a second consecutive day, underlying buoyant investment interest. Its holdings stood at 1,347.018 tonnes on November 28, up nearly 11 tonnes so far this month and on course for its fourth month of straight gains. Spot silver was up 1.4 percent at $34.22, while the gold-silver ratio, which measures the number of silver ounces needed to buy an ounce of gold, stood at 51.1, hovering above a two-month low. Spot platinum was up 0.9 percent to $1,612.50, while palladium outperformed, climbing to its highest since mid September at $689 an ounce. It was later at $686.25 an ounce, up 2 percent.