Gold rose nearly 1 percent to a one-month high on Wednesday, breaking ranks with the euro and equities, as evidence of strong physical demand from China fuelled fund buying after bullion's recent sell-off. The metal rose for a second day as the single currency hit a 16-month low against the dollar after ratings agency Fitch warned of dire consequences if the European Central Bank refrains from taking more action on Europe's debt crisis.
Bullion has gained more than 5 percent in 2012, appearing to halt a strong, positive link with riskier assets. In the previous two months, gold had tended to fall when the dollar strengthened, trading in virtual lockstep with the euro. Spot gold was up 0.7 percent at $1,644.36 an ounce by noon EST (1700 GMT). US February gold futures gained $13.80 at $1,645.30 an ounce.
Gold's gain brought current prices above their 200-day moving average around $1,635 an ounce. The metal had held the 200 DMA for around three years until late December. Gold's rally to a one-month high of $1,646.90 on Wednesday has given investors more confidence to buy the metal, especially in light of improved demand in India given the rupee's rise against the dollar, and a sharp increase in Chinese imports. Data showing record gold imports to China late last year has reassured investors that physical offtake is underpinning the market. China, the number-two buyer of the metal, is preparing for the Lunar New Year this month, a key gold-buying period.
China imported nearly a fifth more gold from Hong Kong in November than the previous month, continuing a trend of sharply rising purchases that has seen bullion flows to the mainland more than triple in the first 11 months of the year. The volume of gold traded has risen in the last week, indicating more investors are active in the market. According to data from CME Group, which offers the benchmark gold futures contract, volume on Tuesday reached its highest since early December and about 25 percent above average turnover on a rolling one-month basis.
Silver was up 0.2 percent on the day at $30.09 an ounce. The gold/silver ratio, the number of ounces of silver needed to buy one ounce of gold, is around 55, up from a week ago, indicating gold's modest outperformance. Platinum was set for a third daily gain, up 2 percent on the day at $1,490.03 an ounce. The metal has been helped this week by reports of a high risk of power outages in South Africa, the world's largest producer of platinum. Palladium was up 0.9 percent at $639.47 an ounce.