Gold prices rose above $1,120 (U.S.) an ounce to their highest in two weeks as the euro extended the previous session's gains versus the dollar, prompting fresh investment flows into the precious metal.
Spot gold was bid at $1,119.15 an ounce at 1010 GMT, against $1,118.95 late in New York on Tuesday. U.S. gold futures for April delivery on the COMEX division of the New York Mercantile Exchange rose $2.60 to $1,121.90 an ounce.
"Investment demand from the United States and a lack of selling out of Asia are pushing gold up," said Standard Bank analyst Walter de Wet, adding that a fall in net long positions in New York gold futures suggested gold had room to rise.
"For most of these commodities, speculative length has declined substantially, so there is room for more money to flow in," he said.
The euro firmed against the U.S. dollar on Wednesday, extending the previous session's gains, as traders covered short positions in the single European currency as the flow of news about Greece's fiscal problems stalled for the moment.
Gold rose late last week on fears over the outlook for debt-laden Greece, which knocked the euro sharply lower versus the dollar. It broke its usual inverse correlation with the dollar as both benefited from risk aversion.
Gold is on course for a 3.8 per cent rise in February, its first monthly increase since November.
European ministers on Tuesday took a tough stance on Greece, telling Athens it may need to take further steps to brings its debts under control, but analysts said a lack of developments had led investors to trim bets the euro.
Gold's relationship with the dollar has now been re-established. Weakness in the U.S. unit boosts gold's appeal as an alternative asset and makes dollar-priced commodities cheaper for holders of other currencies.
"The dollar would need to have a definite pull-back to give... impetus to gold, even though it is still appealing as a hedge against default risk," said VTB Capital analyst Andrey Kryuchenkov in a note.
Oil Climbs
Among other commodities, base metals firmed and oil prices rose 50 cents a barrel, extending the previous session's 3.9 per cent gains towards $78 a barrel.
Gold tends to track crude prices, as the metal can be bought as a hedge against oil-led inflation.
Commodities also benefited from a return in risk appetite, as reflected in a rise in equity markets. European stocks advanced for a third straight session on Wednesday, after Asian shares climbed to a three-week high.
The World Gold Council said in its hotly-anticipated Gold Demand Trends report for the fourth quarter of 2009 that investment appetite for gold was expected to stay firm, though overall gold demand fell 11 per cent in 2009.
India remained the world's number one gold consumer, it said, with fourth-quarter consumption rising 13 per cent to 180.7 tonnes year-on-year as wedding and festive demand peaked.
On the supply side, the world's number three gold miner AngloGold Ashanti, said output in the fourth quarter was slightly lower at 1.18 million ounces owing to safety stoppages at mines in South Africa.
Among other precious metals, silver was at $16.18 an ounce against $16.12, platinum was at $1,542.50 an ounce against $1,118.95, and palladium at $433 against $430.50.
Holdings of the platinum and palladium exchange-traded products operated by the U.S. arm of London's ETF Securities were flat on Tuesday, flattening after early strong inflows.