Gold rose for a second day on Tuesday, drawing strength from a weaker dollar and demand from key Asian consumers, along with a degree of uncertainty over a permanent resolution to Europe's debt crisis.
Gold has fallen more than 3 percent this month, under pressure from investors eager to cash in on the 30-percent price gain of 2010 and also from a waning need for safe-haven assets as data paints a picture of a more robust global economy.
The dollar extended losses against the euro after a measure of German business confidence hit its highest since July, outstripping expectations.
Spot gold rose 0.5 percent to $1,369.20 an ounce by 1145 GMT, while U.S. February gold futures rose 0.6 percent to $1,369.00.
In light of the stronger data and expectations for robust fourth-quarter U.S. earnings, gold could encounter more pressure and Societe Generale analyst David Wilson said ultimately monetary policy in the United States would be the deciding factor in the direction of the bullion price.
It really all depends on whether (Federal Reserve Chairman Ben) Bernanke gets his way and there is further quantitative easing, which is still being talked about, Wilson said.
If there is further quantitative easing there would be more upward support for gold.
The Federal Reserve's $600 billion bond-buying program to stimulate economic growth in the United States has ignited concern about an unwelcome pickup in inflationary pressures and a broad-based decline in the dollar, both of which would prove beneficial to gold.
Meanwhile, euro zone finance ministers have decided to take their time over reinforcing the currency area's rescue fund, while debt-stricken Greece denied a minister's comment that it should stretch out all its debt repayments.
Yet the euro remained firm, pushing euro-priced gold near 1-1/2 month lows around 1,020 euros an ounce.
The debt crisis bubbles up and then pulls back and, at the moment, it's on the backburner again and not really seen as a major issue, Wilson said.
This week's U.S. banks earnings, expected to be strong, could give investors more reason to be optimistic about the sector and the economy in general.
Reflecting the improved consumer appetite for gold in Asia, premiums for gold bars rose on Monday to hit another two-year high as jewelers from China rushed to buy ahead of the Lunar New Year, while purchases from the electronics sector helped stir up physical trading in Japan, dealers said.
We will see quite a bit of bargain hunting if price dips below $1,360. Prices are unlikely to drop much, because the physical demand ahead of the Lunar New Year will help support the prices, said Li Ning, an analyst at Shanghai CIFCO Futures.
Spot silver rose by nearly 2 percent to $28.80 an ounce, yet after 2010's 80-percent gain, investors have punished silver more harshly than gold, bringing the losses for the month so far to about 8 percent and analysts expect more declines.
... we are at a loss to explain silver's relative and absolute price surge from a fundamental standpoint. Accordingly, we expect silver to be a slight underperformer in the current year, wrote Swiss commodity fund manager Tiberius in a monthly report.
In the platinum group metals, palladium gained another 1.8 percent to reach $804.47 an ounce, pushing the price close to last week's ten-year highs, while platinum was last up 1.2 percent at $1,819.99.