Gold surged more than 3 percent Tuesday on bargain hunting and increased Asian purchases of bullion, both of which were aided by a sharply lower U.S. dollar.
Since Wednesday gold has fallen more than 10 percent, the longest such plunge since 1983, as investors sold the yellow metal and piled into dollar assets like U.S. Treasuries in a search for liquidity. The resulting lower price enticed investors looking for a discounted entry point.
Given that we haven't had any correction for months, this has brought better value to the market for people who want to get back into gold, Credit Agricole analyst Robin Bhar told Reuters. I think gold's bottomed out here.
UBS described as exceptionally strong the physical buying of gold from India. Reuters reported that premiums for physical delivery of gold in Singapore and Hong Kong jumped to their highest since February.
The dollar, meanwhile, tumbled 1.2 percent against a basket of major currencies after reaching a seven and a half month high on Monday. Since gold is priced in dollars, a weaker dollar makes it cheaper to buy gold for people who do not use dollars.
The gold rally also got a lift from a mood of optimism about Europe and its long-running sovereign debt crisis.
We're seeing some optimism out there that the Europeans are going to fix some of the problems associated with the Greek default, put that firewall around the countries at risk, provide liquidity and backstop the banking system, Bart Melek, head of commodity strategy at TD Securities, told the Wall Street Journal.
Gold for December delivery rose $57.70 to $1,652.50, a 3.6 percent increase, while gold for immediate delivery increased recently $2.76 to $1,650.09.
Silver for December delivery added $1.56 to $31.54, a 5.2 percent increase, while silver for immediate delivery was recently up 53 cents to $31.77.