Gold rises 1 percent on technical buying, euro gains

A man melts down gold jewellery in Los Angeles, California August 23, 2011.

NEW YORK/LONDON (Reuters) - Gold rose 1 percent on Monday to a six-week high, boosted by technical buying and as the euro rallied ahead of the outcome of a euro zone meeting on Greek debt restructuring.

Gold option volatility also spiked ahead of an expiration later this week. The metal broke above $1,669 an ounce, a key resistance level on technical charts, and approached the $1,700 an ounce level for the first time in a month.

A slumping dollar boosted bullion and crude oil, as Germany and France pressed for a rapid deal between Greece and its private creditors to cut its soaring debt and avert default.

"Gold is reaching another technical area. An above $1,675 close tonight could mean additional buying this week ahead of option expiration and as traders await the euro zone news," said George Gero, vice president of RBC Capital Markets.

Spot gold was up 1.1 percent at $1,676.76 an ounce by 2:30 p.m. EST. Its session high of $1,681.16 was the highest price since December 12.

Gold has fallen only twice in the past 10 sessions and has risen 7 percent in January.

U.S. gold futures for February delivery settled up $14.30 an ounce at $1,678.30 in the COMEX division of NYMEX. Trading volume was in line with its 30-day average.

Volumes were light elsewhere as markets closed in China - one of the world's top gold consumers and in other key Asian markets for the Lunar New Year break.

On charts, gold rose above technical resistance at $1,669 an ounce based on a downward trendline connecting its all-time high and recent peaks, said Rick Bensignor, chief market strategist at Merlin Securities.

Bensignor said staying above that resistance should bring in short covering and new buyers who believe the correction is over.

Gold's next resistance lies at its 100-day moving average at $1,688 an ounce, analysts said.

GOLD VOLATILITY UP

The CBOE Gold ETF Volatility Index .GVZ, often referred to as the "Gold VIX" and based on GLD options, rose to a one-week high of 21.

Volatility often increases ahead of an option expiry. COMEX February options are scheduled to expire on Thursday.

Also boosting gold buying sentiment was a report by trade group World Gold Council that central bank gold purchases are expected to have hit another record in 2011.

Low interest rates should continue to underpin gold investment. A Reuters poll of leading economists showed the Federal Reserve will likely show this week that its policymakers expect to start hiking interest rates again only in the first half of 2014.

Silver closed at $32.30 an ounce, supported by gold. Spot platinum was up 1.9 percent at $1,559.74 an ounce, while spot palladium was up 1.3 percent at $682.03 an ounce.

(Editing by David Gregorio and Alden Bentley)