Gold prices extended gains to rise by around 1 percent on Thursday as the dollar dropped to a two-week low against a basket of currencies and equities rose, reflecting a modest pick-up in appetite for risky assets.
The euro gained against the dollar and European shares rose after a media report said the European Financial Stability Facility (EFSF) would be able to buy Spanish bonds on the primary and secondary markets.
Gold tends to benefit from dollar weakness, which makes assets priced in the U.S. unit cheaper for holders of other currencies. Spot gold was up 0.9 percent at $1,586.61 an ounce at 1252 GMT, while U.S. gold futures for August delivery were up 0.7 percent to $1,581.80 an ounce.
The push is definitely coming from firmer equity markets and this lends some support to commodity prices. Gold and the other precious metals are gaining some lost ground from yesterday and so there is some catch-up potential at the moment, said Daniel Briesemann, analyst at Commerzbank.
The euro also briefly extended gains against the dollar after data showed the number of Americans filing new claims for unemployment benefits rebounded last week, pushing them back to levels consistent with modest job growth.
Gold has recouped some of the ground lost in the last two days after Federal Reserve chief Ben Bernanke disappointed traders who had expected clearer signals on the prospect of further monetary stimulus in his testimony before Congress.
Measures such as quantitative easing (QE) would maintain pressure on long-term interest rates, keeping the opportunity cost of holding gold at rock bottom while also pressuring the dollar.
It seems that every time we do not have QE3 announced, gold slips back as some of these more speculative positions are liquidated, Mitsui Precious Metals analyst David Jollie said.
After that disappointed selling, I think the market returns to more normal behavior and some of these speculators will try to rebuild positions. Others such as the official sector are also likely buyers on price declines.
Firmer appetite for risk also lifted other commodities, such as copper and crude oil, while safe-haven German Bund futures stayed under pressure.
ASIAN BUYERS LACK INTEREST
Selling in Asia's physical gold market could pick up as prices advance towards $1,580 an ounce, but trading is likely to remain dull as long as there is no clear direction for prices during the summer lull.
People are buying and selling when prices move ten or twenty dollars -- they buy at $1,560-$1,570 level and sell to take profit at $1,580, said a Singapore-based dealer. As we remain range-bound, people are not going to be very hungry for physical materials.
From a chart perspective, technical analysts at Barclays Capital identify support for gold at $1,565 an ounce and resistance at $1,610.
Gold's gains helped lift silver 1.3 percent to $27.47 an ounce. The gold/silver ratio, which measures the number of silver ounces needed to buy an ounce of gold, held near its highest in nine months.
Spot platinum was up 1 percent at $1,414.25 an ounce, while spot palladium was up 1.5 percent at $579.71 an ounce.
Switzerland, a major refining and trading hub for platinum group metals, remained a net exporter of raw platinum for a third month in June, although imports more than doubled and exports dropped by 30 percent, Swiss customs data showed.
Russia made no palladium exports to Switzerland for a third straight month in June, the data showed. Supply of metal from Russian state stockpiles has added substantially to the market balance in the last decade, but analysts say they expected these sales to peter out.
Shares in the world's top miner Anglo American Platinum (AMSJ.J) fell in opening trade on Thursday after the company said its interim earnings would drop as much as 78 percent due to lower sales and prices.