* Gold profits from turnaround in euro
* Strongest January in over 30 years means correction likely
* U.S. manufacturing growth at strongest pace since June
By Amanda Cooper
LONDON, Feb 1 Gold rallied for a second
day on Wednesday, supported by upbeat economic data from Germany
and the United States, with the precious metal building on gains
in January that marked its strongest year-opening month in 32
Spot gold was up 0.4 percent at $1,744.15 an ounce at
1534 GMT, on course for a fifth straight week of gains.
It rose 11 percent in January, the largest one-month gain
since August 2011 and the largest for the month of January since
1980, thanks to a combination of the weakness in the dollar from
a Federal Reserve commitment to keep U.S. rates near zero and
central bank purchases.
Evidence of Germany's economic health helped boost the euro,
and gold by extension.
Market sentiment was also boosted by data showing the pace
of growth in the U.S. manufacturing sector picked up in January
to its highest level since June.
"If economic data comes in on the positive side and if the
U.S. labour market report on Friday doesn't disappoint, then
there is still upside potential for gold, but it depends on the
recovery in the euro zone and Greece's debt rescheduling," said
Peter Fertig, consultant at Quantitative Commodity Research.
The single European currency was expected to remain under
pressure from concerns about Greece, however, even after its
finance minister said talks with private creditors on a swap
deal vital to avoid a chaotic default, were "one formal step
Analysts largely expected gold to rally this year, although
many say that a pull-back in the near term looks likely.
"Buyers have returned to the euro, which is
helping the situation in gold. It had a bit of lacklustre
profit-taking yesterday but didn't break anything important on
the downside, which helped confirm that being long is back in
vogue," Ole Hansen, senior manager at Saxo Bank, said.
"The last two weeks have done a heck of a lot to confidence,
and we've seen that attempted corrections have been short-lived,
so the mood has definitely changed, but overall, we are
overbought quite significantly ... so there will be some kind of
The gold price has risen by nearly 15 percent since hitting
six-month lows in late December.
Anecdotal evidence of robust Chinese demand over the Lunar
New Year holiday last week, together with figures on holdings of
the metal in exchange-traded funds and U.S. futures, have added
to the perception that the investor mood towards gold has become
more positive following December's sharp drop.
EURO ZONE SUPPORT
"Concerns about Greece and Portugal are keeping demand for
gold high and supporting the price. Yesterday gold defied the
downward trend in commodity prices and a firmer U.S. dollar,
increasing to an eight-week high of $1,748 per troy ounce,"
Commerzbank analysts said in a note.
"There has still been no breakthrough in negotiations (on
Greek debt) ... The sovereign debt crisis will thus continue to
preoccupy the markets for some considerable time yet and should
support the gold price," they said.
Gold priced in euros was trading at its highest
in nearly six months, having also staged its biggest monthly
rise in January since August, with a gain of 10 percent.
Holdings of metal in ETFs rose by over 650,000 ounces in
January, marking the first month of net inflows
in two months. December's outflows of nearly 1 million ounces
coincided with the second-largest monthly drop in the gold price
since the collapse of Lehman Brothers in late 2008.
Silver outpaced the rest of the precious metals
complex, rising nearly 2 percent on the day to trade at $33.71
an ounce. The silver price rose by nearly 20 percent last month,
in its largest monthly rally in nine months.
Platinum and palladium both rallied in line with firmness
across the industrial commodities complex. An uptick in Chinese
factory activity in January offered further support to raw
Platinum, which relies heavily on Chinese consumers
for jewellery demand, rose 1.5 percent on the day to $1,607.47
an ounce, while palladium, which depends on consumption
in the Chinese car market for demand, gained 1.4 percent to
trade at $690.22 an ounce.
(Additional reporting by Harpreet Bhal; editing by Keiron