Gold extends gains late as dollar falls

NEW YORK/LONDON (Reuters) - Gold prices rose Tuesday, hitting a near two-week high at $1,117.95 an ounce, as the dollar lost ground to the euro, but the precious metal received the most lift from renewed physical and institutional buying once key technical levels were breached.

A man displays gold bars at SJC gold factory in Ho Chi Minh city January 22, 2010. REUTERS/Kham

Spot gold was bid at $1,115.05 an ounce by 2:46 p.m. EST, higher than $1,105.30 price late in New York trade on Monday.

U.S. gold futures for April delivery advanced $13, or 1.18 percent, to end at $1,118 an ounce on the COMEX division of the New York Mercantile Exchange. Earlier, they reached up to $1,119.90, a high last seen January 20.

The metal remained well supported near $1,110 by technical factors.

“There is some fresh money being invested, and that is helping us get out of the range we had established at $1,085-$1,105,” said Deutsche Bank trader Michael Blumenroth. “Now that range is broken, some technical buying is coming in.”

In New York, James Steel, metals analyst and senior vice president at HSBC, said he thought the price drop in January stimulated increasing physical gold demand from emerging market buyers, which drew in institutional buying above $1,100.

Tom Pawlicki, precious metals and energy analyst at MF GLOBAL in Chicago, cited the December low at $1,076 as a trigger that drew some investors back into the market.

Looking at investment flows data, he said he saw a contingent of traders that were long gold, liquidated on recent declines, then quickly tried to get back in as prices rose.

“People were pretty much getting whipsawed by the volatility. A lot of people were starting to line up for a breakdown to new lows when the dollar was climbing against the euro, but that didn’t happen. So, now they’re trying to get back in,” said Pawlicki.

Gold was also lifted by the dollar edging lower versus the euro as Greek government bond spreads over German benchmarks narrowed.

The U.S. dollar weakened as strong corporate earnings and improving economic data convinced investors to wade into riskier assets and currencies where returns are higher.

On the physical investment side, holdings of the world’s largest gold ETF, New York’s SPDR Gold Trust, were unchanged on Monday, but fell 21.7 tonnes in January, against a rise of 63.36 tonnes in the same month a year before.

RBS Global Banking & Markets analyst Daniel Major said an outflow of investment from gold exchange-traded funds was a risk factor for prices.

“After having very impressive inflows during most of last year, we saw 23 tonnes of redemptions from the family of gold exchange-traded funds in January,” he said. “That is not particularly positive.”

Spot silver rose to $16.68 an ounce by 2:35 p.m. EST from $16.63 previously.

The largest silver-backed ETF, the iShares Silver Trust, reported a 29-tonne outflow on Monday.

Spot platinum climbed to $1,575 in late New York business from $1,547.50 in late Monday trade. palladium was at $437.50, up from $428.50.

Platinum group metals were helped by Toyota’s quick fix for recalled cars, Australia holding interest rates steady, South African (energy) politics, and crude oil short covering due to Wednesday inventory figures, according to RBC Wealth Management’s daily report.

The head of miner Anglo American AAL.L said South Africa's mining sector needs to work closely with utility Eskom to find ways of cutting power consumption in the face of planned steep rises in electricity prices.

Societe Generale said in a report late on Monday it sees platinum at an average $1,565 in 2010, with further gains capped in part by weakness in jewelery demand.

Editing by Walter Bagley