Gold gained around 2 percent in thin post-Christmas trading on Friday, as crude oil prices edged higher and the dollar remained flat against a basket of major currencies. Spot gold gained as much as 2.1 percent to a session high of $1,199.00 an ounce in early trade and was up 1.8 percent at $1,194.21 at 1425 GMT, well above a three-week low of $1,170.17 hit on Monday. US gold futures for delivery in February also rose 1.8 percent to $1,194.80 an ounce.
Higher crude prices, as unrest in Libya cut supplies, lent support to gold on Friday. The metal, which is usually seen as a hedge against oil-fuelled inflation, has renewed its relationship with oil lately, mostly suffering from the 5-1/2-year lows hit by crude prices in previous weeks.
Gold was also supported by a flat dollar, which however remained within reach of a near nine-year peak hit earlier this week. Liquidity remained thin during the Christmas break as key markets such as Australia, Hong Kong, Singapore and the UK were closed on Friday, although New York will be open.
"Fundamentally over the current period it's very hard to quantify whether the price action is something of fundamental importance or whether it is a function of liquidity during this time of year," Sam Laughlin at MKS SA said.
"The break above $1,180 is significant, however technically the market looks top heavy around $1,200 in line with the (generally) soft oil price and the volatile equity prices."
Despite Friday's gains, investor sentiment towards the metal is unlikely to improve in the first few months of 2015, as markets expect the US economy to show continued signs of strength that will lead the Federal Reserve to start increasing interest rates. Higher rates weigh on non-interest-bearing bullion.
"Technically we need a $1,225 close and thereafter a $1,250 for the picture to really change," RBC Wealth Management Financial Advisor George Gero said in an email.
Bullion lost ground earlier this week after data showed the US economy grew in the third quarter at its quickest pace in 11 years. Other data showed initial claims for state unemployment benefits dropped for the fourth straight week.
In physical markets, premiums in Singapore have dropped to between 80 cents and $1 an ounce over the global benchmark, from about $1.50 two weeks ago, traders said.
Among other precious metals, silver rose 3.1 percent to $16.17 an ounce and platinum gained 2.1 percent at $1,210.74 an ounce. Both were headed for annual declines. Palladium, up 1 percent at $811, was heading for a third straight yearly increase.
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