Gold prices rose towards $1,780 an ounce on Tuesday, benefiting from gains in the euro ahead of an expected injection of cheap money from the European Central Bank this week, which is lifting appetite for assets seen as higher risk.
Spot gold was up 0.6 percent at $1,777.54 an ounce at 1221 GMT, while U.S. gold futures for April delivery were up $5.60 cents an ounce at $1,780.50.
The precious metal has risen more than 13 percent so far this year, boosted in part by gains in the euro and consequent weakness in the dollar, which makes commodities priced in the U.S. unit cheaper for holders of other currencies.
The euro climbed to a three-month high against the dollar ahead of an expected cash injection of 500 billion euros from the ECB on Wednesday. This is seen as buying more time for authorities to sort out the sovereign debt crisis.
Analysts say with much euro-positive news now largely priced into the market, gold may struggle to rise significantly more.
I think at this point in time, the markets are well aware of what the ECB is going to do. I don't think it is likely to act as a further catalyst for strengthening gold prices, said Deutsche Bank analyst Daniel Brebner.
In the near term, I'm more inclined to sell into this strength, he said. We've had a nice little recovery from very attractive levels in the 1,600s, but at these levels, I think we're due a bit of a pullback.
Gold rallied 3.3 percent to three-month highs last week, but failed to maintain traction as they neared $1,790 an ounce.
But prices benefited as other markets climbed ahead of the refinancing operation. European stock markets rose, while safe-haven German government bonds retreated. .EU
Industrial metals like copper and nickel edged higher, although crude oil slipped as investors worried about recent gains hurting demand.
PHYSICAL GOLD DEMAND SUFFERS
Rising prices weighed on physical demand from major consumer, India, however. Gains in the rupee made the metal nominally more attractive to local buyers, but rising spot prices kept cost-sensitive buyers on the sidelines.
Among other precious metals, silver was up 1.2 percent at $35.79 an ounce. The grey metal had faced resistance at $35.70, but a breach of this level could spark significant fresh gains, analysts said.
The gold/silver ratio, or the number of silver ounces needed to buy and ounce of gold, dropped below 50 for the first time since late October as silver outperformed.
Holdings of the world's largest silver exchange-traded fund rose 22.7 tonnes on Monday, and are up 109.8 tonnes since the beginning of the year. In the same period of 2011, they fell 255.2 tonnes.
Elsewhere, spot platinum was up 0.6 percent at $1,712.24 an ounce, while spot palladium was up 1.1 percent at $709.75 an ounce.
Platinum group metals prices have retreated from five-month highs, although a strike in major producer South Africa persisted. Impala Platinum, whose Rustenburg mine has been affected by the action, says it has already lost 80,000 ounces of platinum output to the stoppage.
The situation is continuing to progress slowly... with the company announcing yesterday that it will re-hire about 87 percent of the dismissed workers. As of yesterday, 9,000 workers had returned to work, said UBS in a note.
Nevertheless, we doubt that the potential for a supply shock out of South Africa is enough to justify a significantly higher platinum price.