NEW YORK/LONDON Gold prices rose to their highest in nearly a week on Tuesday as the euro rallied 1 percent versus the dollar, but volume was light and short-term traders were unwilling to take big risks before year end.
Many long-term traders have closed their books for the year, which should keep gold in a sideways range until 2012.
Still, commodities rose generally, along with stock markets, as investors' focus on positive U.S. economic readings, a successful Spanish debt auction and an improved German business reading sharpened their appetite for higher risk assets.
"The euro rally is a big feature. Also, the general risk-on mentality we're seeing today. The good economic data spurs ideas of growth and lessens the deflationary threat," said Bill O'Neill, managing partner at LOGIC Advisors in New Jersey.
"But mainly, when you see other assets going up, like equity markets, it lessens the need for liquidation of winning assets."
U.S. stocks surged along with equities elsewhere on signs of easing stress in Europe's bond markets, and positive U.S. and European economic readings. .N
Spot gold stayed about 1.3 percent higher into late trade, changing hands around $1,613 an ounce at 3:35 p.m. EST after reaching its highest since December 14 at $1,618.26.
Prices approached, but did not reach the 200-day moving average at $1,621.43 an ounce. Bullion broke below the key technical level last week for the first time since January 2009, when prices slid about 7 percent. Chartists said a rise above that level would be constructive for gold.
U.S. February gold futures settled $20.90 per ounce higher at $1,617.60, a 1.31 percent increase.
"The afternoon rally in risky assets and gold seems to have been spurred by better-than-expected U.S. housing data, which in turn further pushed the U.S. dollar lower," said BNP Paribas analyst Anne-Laure Tremblay.
"The rebound in the gold price could prompt some short-covering, and we could retest the 200-day moving average in the coming days," she added.
The euro firmed against the U.S. dollar on Tuesday, boosted by an unexpectedly strong Spanish debt auction and improved U.S. housing data.
In the United States, a report showed improvement in the struggling housing sector as housing starts and building permits jumped to a 1-1/2 year high in November.
The single currency has been on a steady downward trajectory versus the dollar since it peaked in late October. The dollar's gains have weighed on gold, putting the metal on track for its first quarterly loss in more than three years.
Confidence in the metal remains fragile as concerns persist that policymakers' efforts to address the euro zone debt crisis are inadequate and could keep European assets under pressure.
"A strengthening greenback has traditionally seen gold in dollar terms decline. For a safe haven, you're looking at the dollar. There's a lot of volatility in gold, in commodities, in other asset classes," said VM Group analyst Carl Firman.
GOLD SET TO STRUGGLE
With traders wary of adding to long positions before year-end, prices should struggle to make up significant ground for the rest of the month, analysts said.
Among other precious metals, silver was up 2.3 percent at $29.53 an ounce, tracking gold. Spot platinum was up about 1.2 percent at $1,427.50 an ounce, while spot palladium was up about 2.8 percent at $623.17 an ounce.
ETFS Physical Palladium, the U.S.-based exchange-traded product operated by a unit of London's ETF Securities, saw an outflow of nearly 25,000 ounces, data for Monday showed, the largest one-day drop in its holdings in more than a fortnight.
Meanwhile Swiss trade data released on Tuesday showed Russia exported 5.16 tonnes of palladium to Switzerland in November.
Russia is the world's biggest palladium supplier, selling both mined metal and government stockpiles onto the market.
The statistics also showed South African platinum exports reached their highest monthly level this year in November, at 3.7 tonnes.
(Reporting by Jan Harvey; editing by Alden Bentley)