LONDON: Gold prices rose above $1,615 an ounce on Tuesday, lifted by a recovery in the euro versus the dollar and a rise in stock markets as optimism grew that the European Central Bank will act to lower borrowing costs for Spain and Italy.
Safe-haven German Bund futures extended losses as appetite for assets seen as higher risk picked up. The euro climbed back towards a one-month high against the dollar, while European stocks pared early losses.
Spot gold was up 0.3 percent at $1,615.84 an ounce at 1238 GMT, while US gold futures for August delivery were up $2.90 an ounce at $1,619.10.
"It's all about the exchange rates," Citigroup analyst David Wilson said. "We've had a slightly softer dollar, and that's been supportive."
"Every so often we get some more optimism that Europe is sorting out its problems, as we did over the second half of last week, but I don't think this (strength) will continue," he added. "For that, we really need to see a significantly softer dollar, and that won't happen until the Fed takes action."
Gold bulls are hoping the US Federal Reserve will launch another round of quantitative easing later this year to boost growth, which would hurt the dollar while keeping long-term interest rates at rock bottom and stoking inflation fears.
Disappointment that the Fed did not give any clear clues on the timing of QE combined with disappointment that ECB President Mario Draghi did not unveil another round of bond-buying to push gold prices lower last week.
But although Draghi's guidance on fresh ECB action was heavy with caveats and conditions, he opened the door to a new round of policy action that could even involve quantitative easing - a bold step the ECB has so far shunned.
"Draghi reiterated that the ECB was ready to engage in 'non-standard' measures, potentially involving open market operations," VTB Capital said in a note.
"Global risk sentiment turned bullish on high expectations for stimulus in the monetary union."
INDIAN DEMAND SOFT
Gold demand in major consumer India was sluggish ahead of its festival season, which begins this month and runs through until November. "(The) market is really slow, there is not much of activity before festivals," a dealer with a private bank dealing in bullion said.
Holdings of gold exchange-traded funds, popular vehicles for bullion investment which issue securities backed by physical metal, rose on Monday, with Reuters data covering a range of products showing inflows of 6.9 tonnes.
That was their biggest one-day inflow in ounce terms since March 1, with the bulk of new flows seen into products operated outside the United States by London-based ETF Securities.
Silver was up 1.1 percent at $28.18 an ounce. Spot platinum was up 0.9 percent at $1,408.25 an ounce and spot palladium was up 1.5 percent at $583.47 an ounce.
"Platinum and palladium are being given a boost by more bad news from South Africa, where state energy provider Eskom reports an unplanned outage of 11.5 percent of its energy production capacities at present, the highest figure for nearly two months," Commerzbank said in a note.
"Added to this is an additional scheduled outage of 3 percent. This is fuelling fears of electricity rationing in the platinum and palladium mines."
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