Gold hit a two-month peak on Tuesday and silver reached its highest since mid-March as a drop in European stock prices after soft German economic data helped bullion build on last week's gains. Spot gold hit a high of $1,325.90 and was up 0.1 percent at $1,319.55 an ounce by 1423 GMT, while silver was up 0.7 percent at $20.97 an ounce. Silver earlier rose as high as $21.14.
The precious metals pared gains, but remained close to their earlier peaks, after US new-home sales and consumer confidence data beat expectations. "If stock markets correct further, that would be a factor that would be supportive for the precious metals," Peter Fertig, a consultant at Quantitative Commodity Research, said.
"If we move higher and take out resistance at the April high (for gold at $1,330.90), the market could move back towards the high we reached in mid-March, at around $1,392," he added. Gold posted its biggest weekly rise in three months last week as fighting in Iraq escalated, taking oil to nine-month highs, and as the Federal Reserve's lack of commitment to raising interest rates sparked a wave of short-covering.
It extended those gains as investors switched out of European equities after Germany's Ifo index of business sentiment fell more than expected in June. US stocks were little changed on Tuesday, suggesting investors continued to search for direction following a sharp rally that took indexes to records last week. Investor sentiment towards bullion has shown signs of improvement, with the world's largest gold-backed exchange-traded fund, New York's SPDR Gold Trust, recording a 2.4-tonne increase in its holdings on Monday to 785.02 tonnes.
Its holdings hit their lowest since 2008 last month at 776.9 tonnes. However, physical demand is still weak in the major markets of China and India as consumers expect prices to fall. The world's three biggest platinum firms signed a wage deal with South Africa's AMCU union on Tuesday, but said fallout from a five-month strike made job cuts and restructuring inevitable, setting the scene for more labour turmoil.
The three-year agreement with Anglo American Platinum , Impala Platinum and Lonmin ended South Africa's longest and costliest strike. The union's 70,000 striking members will return to work on Wednesday. Platinum prices had taken support from the strike, but had struggled to break significantly higher as wide availability of above-ground stocks prevented a more vigorous price response.
Prices shed the majority of their strike premium earlier in June, Swiss bank UBS said in a note on Tuesday. "We believe a resolution has already been priced in for some time now, and the most painful - and necessary - part of the correction had already occurred earlier this month," it said. "We expect the dip that the market had been anticipating on the strike conclusion will not occur; indeed we think that dip occurred 10 days ago when the parties involved agreed 'in principle' to the latest proposals." Platinum was up 1.1 percent at $1,466.90 an ounce, while palladium rose 0.9 percent to $827 an ounce.
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