Gold reversed earlier losses on Tuesday, hitting a 2-1/2 week high above $1,615 an ounce on renewed flight-to-safety investment before an anticipated vote by the Cyprus parliament on a bailout plan. The parliament was set on Tuesday to reject an unpopular tax on bank deposits, a government spokesman said, a move that would push the island closer to a default and banking collapse.
Spot gold reached its highest since February 26 at $1,615.16 an ounce and was last seen at $1,612.01, still up 0.45 percent by 1331 EDT/1558 GMT. US gold futures for April delivery were up $6.80 an ounce at $1,611.40. In euro terms, gold peaked at its highest since February 07 at 1,256.50.
The euro zone proposal, unveiled at the weekend, to partially fund a bailout of the island by taxing bank deposits rattled financial markets and pushed gold higher as risk averse investors chose it as a haven. The metal had struggled to retain those gains and started the day by falling to a session low of $1,599.54, as cautiousness prevailed on concerns over the plan.
Deutsche Bank precious metals trader Michael Blumenroth said holders of short positions "got nervous and started to cover their positions." In wider markets, the euro edged back towards the previous session's three-month low versus the dollar, while European and US stocks mostly steadied.
Investment interest in gold remained muted. Selling from gold-backed exchange-traded funds continued on Monday, with the largest, New York's SPDR Gold, reporting its biggest outflow in nearly a month, of 13.5 tonnes. That brought its total outflow this year to 131 tonnes. Traders are also looking ahead to the latest policy meeting of the Federal Open Market Committee, which begins on Tuesday. Speculation that the Fed could withdraw from its monetary easing policy known as quantitative easing, or QE, sooner than expected has pressured gold this year.
HSBC said in a note that it expects the FOMC to reaffirm its commitment to the policy "and to offer no hint that it will alter the policy in the near term." It added that the FOMC "may decide to update its strategy principles of how to 'exit' from QE at the coming meeting.
Silver also reversed earlier losses, rising 0.04 percent to $28.88 an ounce. Meanwhile, platinum was down 1.8 percent at $1,548.75 an ounce and palladium was down 4.5 percent at $728.25 an ounce. Gold extended its historically unusual premium over platinum to its highest since January 11 at nearly $50, as concerns over Cyprus pressured industrial commodities while lifting gold. Platinum, chiefly used in autocatalysts, has traded at a discount to gold for much of the last year, but reversed that trend in the first quarter on growing optimism that steadier global growth would translate into a demand recovery.