Gold steadied on Tuesday, as a late fall in the euro tempered some of the gains in the dollar price derived from safe-haven flows stemming from deepening worries over the severity of the European debt crisis. The decline in the gold price to around one-month lows last week has encouraged an improvement in consumer demand in China ahead of the Lunar New Year in early February, pushing premiums for gold bars to their highest in two years.
After several weeks of almost unrelenting outflows, some of the larger exchange-traded funds backed by physical gold have also seen a pick-up in investor demand, in spite of the decline in the euro, which would normally erode appetite for gold. Spot gold was last largely unchanged on the day at $1,374.00 by 1525 GMT, while US gold futures for February delivery were up 0.1 percent at $1,375.00. The spot price is about 4 percent off December's record high of $1,430.95.
Gold in euros extended gains, rising 0.2 percent to 1,063.84 euros an ounce, notching up a fifth consecutive day of price rises, while gold in yen was up nearly 1 percent at 114,694 yen an ounce. The concerns in the fixed-income markets over the likelihood of an international bailout for Portugal, which would be the third in a year after the rescues of Greece and Ireland, have undermined investor confidence and given gold a boost.
"What is interesting at the moment is the ETFs have shown some liquidation, but the market is able to rally," HSBC analyst James Steel said. The focus this week is on whether Lisbon will be able to raise funds in the debt market on Wednesday or be forced to turn to the EU and IMF for financial aid.
"We think you can look at the European situation in two ways - where you have governments that are overindebted and need to get themselves out of that problem...they can try to inflate their way out of difficulty, which is where you'd want to be holding gold instead, or can go down a route of fiscal retrenchment," said Natixis commodities analyst Nic Brown.
Gold, which rose by 30 percent last year, was a key beneficiary of investor concern over the fallout from the eurozone debt crisis. Premiums for gold bars hit their highest in two years on Tuesday as concern about inflation encouraged Chinese investors to buy bullion ahead of the new year.
"There's a huge demand from China. Refineries just opened and there's not much stock around, so it's a bit tight," said Ronald Leung, director of Lee Cheong Gold Dealers in Hong Kong. The world's largest gold-backed exchange-traded fund, SPDR Gold Trust, said its holdings rose for the first time since mid-December to 1,272.682 tonnes by January 10.
Silver rose for a second session, up 1.1 percent on the day to $29.52 an ounce. While silver enjoyed a large boost from investor interest and rising ETF holdings last year, many analysts say the price is vulnerable to a larger downward correction than gold given the extent of the price rise in the last 12 months and the metal's inherent volatility.
Holdings of silver in the iShares Silver Trust, the biggest silver-backed ETF, have fallen by over 100 tonnes in the last month alone. Platinum was set for a fourth consecutive daily rise, up 1.0 percent at $1,755.24 an ounce, while palladium rose 3.4 percent, up for a second day, at $775.23.