Gold rose for the second straight session on Tuesday after a wave of risk aversion due to growth worries in China and rising tensions in the Middle East triggered demand for the metal, despite the stronger US dollar. Spot gold was up 0.3 percent at $1,077.87 an ounce at 2:08 pm EST (1908 GMT). On Monday, it rallied 2.2 percent to a four-week high of $1,083.30 after data showed Chinese factory activity contracted for a 10th straight month in December.
US gold futures for February delivery settled up 0.3 percent at $1,078.40 an ounce. "More weakness in China ... would be more positive for gold but investors would need to see more evidence of systemic issues there, which is still unlikely," Julius Baer analyst Carsten Menke said. "That could be the only longer lasting upside for gold in an otherwise bearish outlook due to sound growth in the US and lack of inflation risks."
Monday's 7 percent slide in China stocks sparked by weak economic data rekindled worries over global growth and sent European and US stocks diving. Bullion, often seen as an alternative investment in times of political and financial uncertainty, is also benefiting from a shift away from risk along with the Japanese yen and US bonds.
"Gold has finally responded to the falling equity markets rather than the volatility in the dollar at the start of this year, possibly reviving its role as a safe haven asset," said Fawad Razaqzada, technical analyst of Forex.com and City Index. "However, it is early days still and the lack of a more significant rally makes me wonder whether this latest rise will prove to be another 'dead-cat bounce.'"
Safe-haven rallies tend to be short-lived and gold could see the focus shift back to US monetary policy soon. The minutes from the US Federal Reserve's December meeting, when interest rates were raised for the first time in nearly 10 years, will be released on Wednesday. "We started 2016 speculating on the trajectory of the US interest rates and the direction of the dollar...these factors have faded a bit at this stage but will come back as a bearish factor," SaxoBank's Hansen said. Silver rose 1.2 percent to $14.01 an ounce, having ended 2015 down 11.7 percent. Among industrial metals, platinum was up 0.1 percent to $883.82 an ounce and palladium turned down 1 percent to $533.50, after falling more than 4 percent on Monday.