NEW YORK/LONDON (Reuters) - Gold rose on Wednesday after China vowed to continue to invest in euro zone government debt, increasing gold’s appeal as a hedge against inflation fueled by ample liquidity in the financial system.
Bullion broke ranks with the euro and U.S. equities, even though it was off session highs as the dollar recovered losses on news euro zone finance officials are looking to delay a second bailout program for Greece.
The metal rose as much as 1 percent after China’s central bank governor said China and other emerging nations such as Brazil, Russia or India were waiting for the right time to help the euro bloc, but there were no concrete promises on fresh funding.
“For China to make a commitment like that is enough to give gold the psychological boost and to...increase the potential for inflating commodities and precious metals prices,” said Jeffrey Sica, chief investment officer of SICA Wealth Management with more than $1 billion in assets.
Spot gold was up 0.4 percent at $1,725.79 an ounce by 3:04 p.m. EST (2004 GMT).
U.S. COMEX gold futures for April delivery settled up $10.40 at $1,728.10. Volume was about 30 percent below its 30-day average, in line with its recent pace.
Gold was lifted by crude oil’s gains, while the euro and Wall Street fell after initial rallies fizzled.
The metal, though viewed as a safe haven, has tracked the fortunes of riskier assets in the past few months, as market turbulence caused by the euro zone debt crisis forces investors to sell gold to cover losses elsewhere.
“The correlation between gold in the short term and some of the risk markets is higher than people probably expect,” said Pau Morilla-Giner, head of equities, commodities & alternative investments at London and Capital Asset Management.
“Gold continues to trade about 60 to 70 percent of the time as an alternative currency, which clearly has to do with being a better store of value than nominal currencies that are being abused by excessive quantitative easing (QE) across the board,” he added.
A few Federal Reserve officials in January believed another round of central bank bond buying would be needed before long to support the U.S. economy, but others dissented, minutes of the Fed’s last meeting showed.
Also boosting sentiment was news hedge fund manager and long-time gold bull John Paulson’s firm continued to keep a significant stake in SPDR Gold Trust at the end of the fourth quarter, a U.S. regulatory filing showed.
Paulson & Co cut his gold ETF bullion holdings by about $600 million in the fourth quarter, a second straight reduction that was probably driven by client redemption needs as he remained upbeat on the metal.
However, Paulson’s selling in the SPDR Gold Trust was more than offset by buying by other investors, reflecting long-term confidence in gold.
Spot platinum was up 0.3 percent at $1,628.99 an ounce.
Silver was down 0.7 percent on the day at $33.30 an ounce, while palladium inched down 0.4 percent to $679.47.
Additional reporting by Rujun Shen in Singapore; Editing by Lisa Shumaker