Gold prices rose on Thursday, approaching their earlier eight-week peak above $1,750 an ounce, as a larger than expected fall in new U.S. claims for unemployment benefit lifted stock markets and helped pull the dollar off highs versus the euro.
The precious metal has risen nearly 12 percent this year, supported by the Federal Reserve's announcement that it would hold U.S. interest rates at rock bottom for an extended period. The move is set to keep the dollar under pressure and the opportunity cost of holding non-interest bearing bullion low.
Spot gold was up 0.2 percent at $1,747.00 an ounce at 1440 GMT, while U.S. gold futures for February delivery rose $1 an ounce to $1,750.50. Gold earlier peaked at $1,753.20, its highest since Dec. 8.
Gold's fundamentals are strong and the recent rebound in risk appetite has encouraged investors to come back to the market or add to their existing positions, said Anne-Laure Tremblay, an analyst at BNP Paribas.
Anecdotal evidence suggests that bar and coin demand remains high in the U.S. and Europe, with physical gold being bought as a safe haven, she added. We expect gold to reach new highs in 2012, although episodes of extreme risk aversion may trigger corrections along the way.
Stock markets rose after data showed new claims for U.S. unemployment benefits fell last week, pointing to a further recovery in the battered jobs market.
European shares and the euro bounced around in choppy trading on Thursday as investors weighed concerns about efforts to reach a deal to bailout Greece with optimism over signs of fragile economic growth.
Worries over the euro zone debt crisis had driven gold sharply higher for much of last year even as they weighed on the euro. Towards the end of the year, however, the metal behaved more like a commodity, tracking equities lower as risk appetite retreated and suffering from strength in the dollar.
Underlying confidence in its ability to push higher in a low interest rate environment has allowed it to rise this year even in times when other assets are under pressure.
While gold's 20-day rolling correlation with risk has jumped back into positive territory, the level continues to hover near the lower end of the range, said UBS in a note.
Gold appears in the process of convincing investors that its stint as a hybrid between a safe haven and a risk asset is coming to an end. The next test would be if we get any negative surprises out of Europe.
PLATINUM HOLDS NEAR 2-1/2 MONTH HIGH
On the physical markets, demand by the world's biggest gold consumer, India, edged higher as strength in the rupee made the precious metal cheaper for local buyers. The wedding season is underway in India and will last until May.
The biggest global producer of gold, China, said its production of the metal rose to a record 360.95 tonnes last year. Its domestic demand far outstripped that figure, however.
Silver was up 0.1 percent at $33.73 an ounce. Spot platinum was up 0.4 percent at $1,618.49 an ounce, while spot palladium was up 0.4 percent at $696.75 an ounce.
Platinum has outperformed gold so far this year, rising nearly 16 percent since end December. As well as benefiting from rising appetite for commodities, the metal has taken support from expectations that South African production could be disrupted this year by mine stoppages.
Price-positive news also filtered through from the demand side of the market. Most platinum and palladium is consumed by the car industry for use in catalytic converters.
Platinum and palladium benefited yesterday from better than expected vehicle sales figures in the United States, said Commerzbank in a note.
On an annualised and seasonally adjusted basis 14.13 million vehicles were sold in January, almost 12 percent more than in the previous year.