Gold rose on Friday, on track to notch its biggest weekly gain in six weeks, as optimism about European plans to contain the region's fettering debt crisis and a dollar drop lifted bullion in a broad rally among riskier assets.
Bullion pared early gains but tracked U.S. stocks and industrial commodities higher for the day, as French and German officials are trying to finalize a crisis resolution plan at this weekend's G20 meeting in Paris. Also supporting was news China's inflation dipped, easing worries of further tightening.
Encouraging news about plans to tackle euro zone debt crisis and strong U.S. corporate earnings prompted gold, traditionally a safe haven, to move in tandem with equities. The metal is set to rise 2 percent for the week, while the dollar index .DXY is on track to fall 2.5 percent.
We are looking for a possible higher trading range and a new breakout over $1,700. However, at some point, strong stocks and other assets can become a distraction for investors and asset allocators, said George Gero, vice president at RBC Capital Markets.
Spot gold was up 0.4 percent at $1,673.69 an ounce by 12:05 p.m. EDT.
U.S. gold futures for December delivery were up $7.40 at $1,675.90 an ounce.
Decreasing liquidity tends to result in elevated volatility, which in gold hit a 2-1/2 year high in the early part of this month before subsiding.
The average daily volume in trading of U.S. gold futures this year accounts for about 17.5 million ounces of gold. Daily volume in gold futures has topped this figure on just one trading day so far this month.
Analysts said there was a lack of conviction among bullion investors while uncertainty over Europe continues to run high.
RISK ASSET OR SAFE HAVEN?
Gold rose in lock-step with the S&P 500 for the week on hopes about progress to tackle the euro zone debt crisis, in spite of a downgrade to Spain's sovereign debt and a decision to grant Greece its agreed bailout money.
Gold is no longer viewed exclusively as the anti-risk trade. Instead, gold has been moving in positive correlation with risk assets of late, UBS said in a note.
The Swiss bank said that gold could benefit increasing cyclical risk and sovereign risk in the months ahead.
UBS said the bank's physical gold sales in India so far this year rose 10 percent, suggesting resilient buying interest in the world's biggest gold consumer despite higher prices.
Exchange-traded funds, another gauge of investor involvement with gold, have registered almost no change in the amount of metal held by these products this month, after a decline of about half a million ounces in September.
Among other precious metals, silver was up 0.8 percent at $32 an ounce, while platinum rose 1 percent to $1,543.24 an ounce, posting its biggest weekly rise in about two months and snapping five weeks of consecutive losses.
Palladium climbed 3.2 percent to $608.72 an ounce. It is up around 2 percent so far this week, reversing five weeks of decline.
Prices at 12:05 p.m. EDT (1605 GMT)
LAST NET PCT YTD
CHG CHG CHG US gold 1675.90 7.40 0.4% 17.9% US silver 32.030 0.363 1.2% 3.5% US platinum 1550.00 17.60 1.2% -12.8% US palladium 611.90 17.80 3.0% -23.8%
Gold 1673.69 7.49 0.4% 17.9% Silver 32.00 0.25 0.8% 3.7% Platinum 1543.24 15.51 1.0% -12.7% Palladium 608.72 18.84 3.2% -23.9%
Gold Fix 1678.00 2.00 0.1% 19.0% Silver Fix 31.82 -15.00 -0.5% 3.9% Platinum Fix 1553.00 7.00 0.5% -10.3% Palladium Fix 614.00 9.00 1.5% -22.4%