Gold prices rose 1.5 percent to a two-week high early on Tuesday, as signs of a slowing US economy fuelled investors' expectation that central banks around the world will introduce new monetary stimulus. The metal also benefited from inflation-hedge buying because of sharp rallies in crude oil on rising tensions over Iran's nuclear program, and as grain prices rose as a drought in the US Midwest spurred supply fears.
Gold has gained almost 5 percent in the past two sessions after data showed the US manufacturing shrank in June for the first time in nearly three years. New orders for US factory rose in May but the trend has appeared softer this year. Slowing US growth, a European debt crisis and signs of cooling in the Chinese economy suggested policymakers will be more likely take bold steps to avoid a recession.
"We believe if evidence continues to mount that the US economy is slowing and may require further monetary stimulus, then gold prices could get a boost rally," said James Steel, chief commodity analyst at HSBC. Spot gold rose 1.6 percent on the day to $1,622.16 an ounce by 12:15 pm EDT (1615 GMT).
US gold futures for August delivery were up $25.20 an ounce at $1,622.90, with trading volume remained light for a second straight session ahead of the US Independence Day holiday on Wednesday. Hopes for more monetary stimulus, including a third round of US assets-buyback program known as quantitative easing (QE3), boosted US equities and industrial commodities like copper.
Asia's physical gold demand remained thin after short-lived excitement late last week when bullion briefly dropped below $1,550 per ounce, before Friday's 3 percent rally. In other precious metals, spot silver rose 3.2 percent to $28.36, tracking gold's gains. Prices remain near their 2012 lows, however, and are little changed so far this year. Platinum rose 1.8 percent to $1,474.75, while palladium was also up 3.9 percent at $594.24. Prices at 12:15 pm EDT (1615 GMT).
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