NEW YORK/LONDON, Jan 11 (Reuters) - Gold rose to a one-month high on Wednesday, breaking ranks with the euro and equities, as evidence of strong physical demand from China fueled 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 around 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.
However, some analysts said gold's gains could be
short-lived because the metal has failed to garner safe-haven
buying even as markets fretted over the viability of the euro.
"The strength of the dollar has not been friendly to
commodities markets in the past couple of years. As long as the
dollar is in an uptrend, I wouldn't be too positive on gold at
this point," said Mark Arbeter, chief technical strategist at
S&P Capital IQ.
Spot gold was up 0.3 percent at $1,637.51 an ounce by
2:36 p.m. EST (1936 GMT). U.S. February gold futures
settled up $8.10 at $1,639.60 an ounce, with volume in line with
its 30-day average.
Gold's gain brought 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.
The metal drew support from macro hedge fund buying, said
James Steel, chief commodities analyst at HSBC.
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.
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