Gold prices rose on Tuesday, in tandem with the euro, on technical buying and as lackluster economic data lifted investor hopes for monetary stimulus in China.
Bullion prices gained after weak growth suggested that China
-- called by some the world's economic engine -- may try to boost productivity through monetary easing. But gold ended off a five-week high hit earlier in the session as a U.S. equities rally fizzled.
The fact that a flurry of credit downgrades in Europe and ongoing debt fears have failed to further boost gold showed that bullion could be near its decade-long bull run, analysts said.
A lot of the issues regarding the euro zone debt crisis are already priced in, and the downgrade was a confirmation of what investors already knew, said Erica Rannestad, analyst at commodities consultant CPM Group
Rannestad said she expects the European crisis may not provide as much momentum to gold buying as it has in the past.
Spot gold was up 0.4 percent at $1,650.30 an ounce by 3:09 p.m. EST (2009 GMT), having peaked at $1,667.41.
U.S. gold futures for December delivery settled up $24.80 an ounce at $1,655.60. Prices are up 5.5 percent this year after falling 10 percent in December.
Trading volume was about 50 percent above its 30-day average as U.S. traders returned after the Martin Luther King Jr. Day holiday on Monday.
Technical support was cited as gold has closed above resistance at its 200-day moving average in the past five sessions.
Gold now looks to test the trend resistance at $1,688. A close above would open the way for the November 2011 highs and double-bottom neckline at $1,803, said Tom Fitzpatrick, chief technical strategist of CitiFX, Citigroup's technical research unit.
Gold extended gains as the euro rose against the dollar after two days of losses. The metal's rise since the start of this year had occurred without the benefit of a weaker dollar.
The outlook for the single currency remained negative after Standard & Poor's downgraded the euro zone's EFSF bailout fund by one notch to AA+ following multiple euro zone downgrades on Friday.
GOLD SET TO PEAK
Gold may set a record high above $2,000 an ounce in late 2012 or early 2013, but the metal is nearing the end of a decade-long run that has lifted prices by more than 600 percent, metals consultancy GFMS said on Tuesday as it released a closely watched industry report.
The report does acknowledge that the gold market is nearing the closing stages of its decade-long bull run and that, once the macroeconomic backdrop changes and investment in gold fades -- probably sometime next year -- a secular retreat in the price will unfurl, GFMS said.
On physical demand, India hiked its gold import duty by 90 percent and doubled its silver tax on Tuesday as the world's biggest consumer of bullion sought to increase revenues. The moves, which could nearly double duties on both metals, hit shares of Indian jewelers.
Silver eased 0.1 percent at $29.90 an ounce.
Platinum was up 1.6 percent at $1,516.50 an ounce, having earlier hit a six-week high, while spot palladium was up 1.8 percent at $647.50 an ounce.