Gold Prices Rise For Second Day On Bullion Bargain Hunting By Asian Buyers, Breaks Through $1,600 In Midday Trading

Those recent price declines have been steep. Gold has been falling since Oct. 4, 2012, when it closed slightly above $1,800 per ounce. On Friday it closed at $1,576.10. But on Monday it rose about 1 percent to $1,586.60, and the gains continued Tuesday.

"Gold prices were supported in early trading by strong emerging-market physical demand," said James Steel, an analyst with HSBC. "Physical bullion demand from China and India picked up as prices showed signs of stabilization following weakness earlier in the month. The re-emergence of physical buyers in China following the Lunar New Year celebrations was an encouraging sign that may help stem further losses, we believe."

Bullion prices may be supported by emerging-market central banks’ increasing appetite for gold, he said.

Russia increased its gold reserves by 12.2 tons in January, Turkey added 10.3 tons to its reserves, Kazakhstan increased 1.5 tons and Belarus bought half a ton of gold. Altogether, the central banks added 24.5 tons of gold in January, a period in which bullion prices were relatively stable.

"With less than a week left in February, we believe that the steep gold price decline earlier this month may have increased central banks’ appetite for bullion," Steel said. "In 2011 and 2012, gold price declines coincided with increases in central banks’ bullion buying, and gold price increases have coincided with curbs in central banks’ buying."

Gold was also supported by safe-haven buying and short-covering later in the trading session as it shrugged off a weaker euro, which fell Monday after initial results in Italy suggested the election may end in a divided parliament, he said. 

There could more more gains this week.

"Gold had a 'near-term bottom-out' here," Ron Florance, managing director of investment strategy at Wells Fargo Private Bank, told Reuters. "We think there is a near-term opportunity for a bounce up."