Gold prices rose for a second day on Tuesday as deepening worries over the severity of the European debt crisis prompted safe-haven buying. Japan promised to buy eurozone bonds this month, a day after China renewed its commitment to buy Spanish debt, highlighting Europe's ongoing struggle with a seething debt crisis.
"The market is able to rally, despite the fact the euro is still weak, and that is evidence that the safe-haven demand for gold has eclipsed the weakness in the euro, because they've both reacted to the sovereign debt crisis," said James Steel, chief commodity analyst at HSBC.
The euro wiped out earlier losses to rise modestly against the dollar, with traders citing talk of increased Portuguese bond buying by the European Central Bank as helping lift the currency, sending gold off its highs. Spot gold rose 0.3 percent to $1,378.66 at 12:18 pm EST (1718 GMT). US gold futures for February delivery climbed $4.60 to $1,378.70. The metal is about 4 percent off December's record high of $1,430.95.
Gold notched its biggest weekly decline since May last week, which has spurred demand in India and China, a top bullion consumer ahead of the Lunar New Year in early February, pushing premiums for gold bars to their highest in two years. China's inflation raced to a 28-month high of 5.1 percent in November, and it's not clear whether policy steps the government is taking will calm prices, benefiting gold.
The world's largest gold-backed exchange-traded fund, SPDR Gold Trust, said its holdings rose for the first time since mid-December to 1,272.682 tonnes by January 10. Gold, which rose by 30 percent last year, was a key beneficiary of investor concern over the fallout from the eurozone debt crisis.
"Where you have governments that are overindebted and need to get themselves out of that problem ... they can try to inflate their way out of difficulty, which is where you'd want to be holding gold instead, or can go down a route of fiscal retrenchment," said Natixis commodities analyst Nic Brown.
Gold priced in euros extended gains, rising 0.2 percent to 1,063.84 euros an ounce, notching up a fifth consecutive session of price rises. Silver rose for a second session, up 1.3 percent on the day at $29.44 an ounce. Improved US auto sales and ongoing supply worries lifted platinum group metals, which are largely consumed as autocatalysts. Platinum rose for a fourth consecutive day, up 1.3 percent at $1,760.74 an ounce, while palladium rose 3.9 percent, up for a second day, at $779.47.
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