London: Gold rose back above $1,210 an ounce in Europe yesterday as physical demand for the precious metal recovered after last week's price dip, and as the weaker dollar encouraged some buying.
Spot gold was bid at $1,210.85 an ounce at 0952 GMT against $1,206.95 late in New York on Monday. US gold futures for August delivery firmed $3.90 an ounce to $1,211.60.
The metal benefited from dollar weakness, which boosts its appeal as an alternative investment and makes dollar-priced assets more expensive for other currency holders. The dollar fell 0.45 per cent versus a currency basket early yesterday. The usual inverse relationship between gold and the dollar broke down earlier in the year as both benefitted from extreme risk aversion, but it has shown signs of reemerging as euro zone sovereign debt concerns recede.
"The relationship between gold and the dollar has been very frenetic of late," said Daniel Major, an analyst at RBS Capital Banking & Markets. "Particularly in the last week, you saw a $20 fall in gold on a day when the currencies were supportive.
"[But] in the short term, the intraday chart of the euro-dollar versus gold is tracking perfectly."
The dollar retreated after an upbeat assessment of the global economy by the Reserve Bank of Australia stoked short-covering demand for higher-risk currencies.
Global risk appetite was improving yesterday, having taken a beating in the past few weeks on growing worries about the health of the euro zone's banking system, a slowdown in China and risks of a double-dip recession in the US.
Among other commodities, oil rose more than 1 per cent from yesterday's trough, as the dollar tumbled and Asian stock markets rebounded amid easing concern about the slowdown in the global economic recovery, while base metals rose.
"It will only take a sequence of better-than-expected US data releases to force the market once again into a game of relative merits, one which the euro will struggle to win," said Credit Agricole in a note.
Gold demand picked up a touch after last week's correction from record highs, as the metal became more affordable for buyers. Indian buying continued as traders in the world's biggest gold consumer picked up bargains ahead of a second round of festivals and watched the rupee for direction, dealers said.
