NEW YORK: Gold rose on Monday, breaking ranks with the lower equities and crude oil markets, as safe-have buying was promoted by growing uncertainty ahead of a key European summit and signs of a worsening debt crisis in that region.
The metal spiked higher after being range bound early on Monday.
News of Cyprus became the fifth euro zone country needing rescue funds hours after Spain formally requested help for its banks, and Germany's opposition to issue euro zone bonds to boost the single currency also increased gold's investment appeal.
Gold's rally was particularly impressive on a day when Wall Street dropped nearly 2 percent and crude oil prices were down on investors' skepticism that an EU summit this week would result in action on the bloc's crisis. A grains rally due to dry weather in the US Midwest underpinned gold buying.
"It's obviously a flight to quality, and gold is trading like a currency instead of a commodity. Until gold breaks out of this trading range, I suspect volume is going to remain tepid," said James Dailey, portfolio manager of TEAM Financial Asset Management.
Spot gold was up 0.8 percent at $1,583.99 an ounce by 2:31 p.m. EDT (1831 GMT).
Silver rose 2.7 percent to $27.57 an ounce on pent-up demand after the metal has recently underperformed gold.
Some investors covered their bearish bets after gold posted a 3.5 percent decline last week on deflation worries and a lack of aggressive Federal Reserve stimulus.
On Friday, gold briefly crossed into negative territory for 2012 due to frustration over the Federal Reserve's decision to lengthen its "Operation Twist" program aimed at lowering long-term interest rates instead of a new outright bond purchase program
US gold futures for August delivery settled up $21.50 an ounce at $1,588.40.
US futures trading volume was just more than half of its 30-day average, preliminary Reuters data showed.
Turnover was light as some traders avoided adding positions because of likely volatility from news out of the two-day meeting of EU leaders in Brussels that begins on Thursday.
James Steel, chief commodity analyst at HSBC, said gold was helped by safe-haven bids against the headwinds of weaker crude and equities, which are usually negative on bullion prices.
INDIAN DEMAND WEAK
Physical buying from India, one of the world's top bullion consumer, failed to rebound despite a recovery in the rupee from last week's record lows versus the dollar, dealers said.
Analysts attributed the metal's recent weakness to a sharp decline in gold import from India year-on-year because of the high price of gold in local terms due to its weak currency.
Among other precious metals, spot platinum was up 0.5 percent at $1,434.45 an ounce, while spot palladium inched down 0.1 percent to $603.15 an ounce.
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