Gold hit a four-week high and broke above a key resistance on Wednesday, defying a stronger dollar, as the festering euro zone debt crisis lured investors to its safety and signs of strong demand from the world's top two consumers also supported.
Short-covering after gold breached above the key 200-day moving average - $1,635.25 an ounce - may also have helped push up prices, traders said.
While the dollar may not see a significant correction soon, and is likely to continue to gain against the euro as the euro zone crisis persists, the negative effects of a stronger dollar on gold are likely to be largely diminished in 2012, allowing the bullish macro drivers to dictate price action once again, Societe Generale said in a research note.
The prospects of aggressive monetary easing from the world's key central banks, including the European Central Bank, will keep sentiment for gold and silver bullish, it also said.
Asian shares gave up earlier gains and the euro struggled, on concerns over euro zone sovereign funding ahead of Spanish and Italian debt auctions later this week. The dollar firmed 0.2 percent versus a basket of currencies.
Spot gold gained 0.8 percent to a four-week high of $1,646.56 an ounce, before easing slightly to $1,643.50 by 0733 GMT, on course for a second session of gains.
U.S. gold rose 0.8 percent to $1,644.60.
Technical outlook for the day suggested that spot gold could peak around $1,650, said Reuters market analyst Wang Tao.
For the second straight session, spot gold broke above the 200-day moving average, a key support-turned-resistance level, offering hopes that bullion may resume an uptrend that started in 2008.
Technically we are still in a consolidation period after the record high in September, and this phase will likely end in end-February or early March, said Dominic Schnider, head of commodity research at UBS Wealth Management.
Clearly the uptrend will prevail.
But in the short term gold may be capped at the $1,680 level, he added.
INDIA BUYING ACTIVE ON STRONG RUPEE
Dealers reported strong physical demand from India, the world's largest bullion buyer, after its currency hit a one-month high against the dollar.
China's appetite for gold also remained strong.
It imported nearly a fifth more gold from Hong Kong in November than the previous month, continuing a trend of sharply rising purchases that has seen bullion flows to the mainland more than treble in the first 11 months of the year.
Platinum group metals extended gains into a third straight day due to concerns on supply disruption in South Africa, as the national grid Eskom warned about extremely tight power supply in January.
Spot platinum rose more than 1 percent to a four-week high of $1,481.25, before easing to $1,476.24. Spot palladium rose 0.7 percent to $637.68.
The gold-platinum spread narrowed to just below $165 an ounce, its smallest in two weeks. The price of platinum has been consistently lower than that of gold since last September, as gloomy economic outlook dampened sentiment on platinum, while gold's safe-haven appeal helped limit a price decline.