Gold extends gains on EU debt hopes

SINGAPORE: Spot gold prices edged higher on Tuesday, building on a rally of more than 2 percent in the previous session, as optimism about a resolution of the euro zone's debt crisis underpinned market sentiment.

The pledge by Germany and France on Sunday spurred rallies in commodities and equities, and also helped US gold futures stage the biggest one-day rise in nearly two weeks.

"As the news revived risk appetite, some money was being moved out of the money market to commodities, including gold," said Hou Xinqiang, an analyst at Jinrui Futures in China.

"In addition, the outlook for stronger physical gold demand is likely to buoy sentiment in bullion."

Premiums for gold bars in Hong Kong stood at around $3 an ounce to spot prices, their highest level since at least February, while the premium in Tokyo held at 50 cents, dealers said.

"We see the bottom for gold prices at $1,600," said a dealer at a large Tokyo-based bullion house. "When gold prices approach that level, physical demand from emerging economies rises."

Spot gold rose to $1,684.36 an ounce earlier in the day, its highest in more than two weeks. It stood at $1,678.30 by 0606 GMT, up 0.2 percent from the previous close.

US gold gained half a percent to $1,679.90.

EURO ZONE IN FOCUS

Investors are waiting to see if Slovakia will approve the expansion of the bloc's rescue fund in a vote later in the day. Slovakia is the last of the 17-member bloc yet to greenlight the deal.

The European Union on Monday postponed a summit by a week to allow time for a broader solution to Greece's debt crisis, after Athens said it had concluded talks with international lenders on an aid payment needed to avert default.

"The tug of war remains until the politicians wake up," said a Singapore-based trader, adding that gold is likely to be remain rangebound between $1,630 and $1,720.

Asian shares rose and the euro held the previous session's big gains.

Copyright Reuters, 2011