NEW YORK: Gold rose for a second consecutive session on Tuesday, extending the previous day's rally, as strong physical demand and a weaker dollar amid economic optimism lifted the precious metal.
Bullion a traditional safe haven which has recently followed riskier assets tracked equities' gain on a rebound in US consumer confidence and as investors across the board eyed further progress on a solution to Europe's debt crisis.
Overall market liquidity in US gold futures fell to its lowest level since April, data from the most recent US futures regulator showed, while investors continued to shore up bullion holdings by buying gold-backed exchange traded funds.
"It's all the macroeconomic events that are driving every single market including gold, not market fundamentals" said Ron Lawson, partner of commodities investment firm LOGIC Advisors.
"The fundamental reasons for owning gold are as good today as they were when gold was trading $300 to $400 lower."
Spot gold was up 0.5 percent at $1,719.10 an ounce by 3:00 p.m. EST (2000 GMT).
Open interest, a liquidity gauge, dropped to a seven-month low during the week ended Nov. 22, US Commodity Futures Trading Commission (CFTC) figures showed, as managed money including hedge funds and other speculators trimmed its net long position in gold futures and options.
Lawson said that the open interest in gold futures dropped as some investors were turned off by counterparty risk after the demise of the now-defunct futures broker MF Global.
Meanwhile, gold holdings in exchange-traded funds hit a new record high last week, rising by more than 2.2 million ounces in just one month to around 70 million ounces, almost equivalent to total mine supply this year.
US December gold futures settled up $2.60 at $1,713.40 an ounce. Volume was over 10 percent above its 30-day average, preliminary Reuter’s data showed, boosted by a brisk contract rollover ahead of December's first-notice day on Wednesday, traders said.
The higher-than-norm turnover was boosted by the closing out of the December contract and the initiation of the new benchmark February, which counted two lots traded.
Gains in commodities across the board led by crude oil and grains also helped lift gold.
HSBC metals analyst James Steel said that record retail sales after the US Thanksgiving day holiday last week implied good jewellery demand for gold and silver and strong seasonal buying.
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