Spot gold rose 1.5 percent on Wednesday, outperforming equities for the third day in a row as renewed talk of U.S. and European monetary stimulus boosted the precious metal's appeal to investors seeking an inflation hedge.
Bullion notched its biggest daily rise in around a month on speculation the European Central Bank will create new money to fund rescue operations for troubled euro zone countries, traders said.
Late on Tuesday, gold got a boost from talk that the Federal Reserve was exploring new tools to boost U.S. growth.
"The gold market has been looking for any hints of any quantitative easing program. You are seeing this big bounce today off the fact that there could be something going on in euroland," said Jeffrey Sherman, commodities portfolio manager at DoubleLine Capital LP, which has $38 billion in assets.
Options-related buying above the popular $1,600 call strike price also lifted underlying futures ahead of Thursday's COMEX August option expiry. In addition, technical support helped as the metal now appears moving closer to break out of a trading range following Wednesday's rally, dealers said.
Spot gold was up 1.5 percent at $1,604.01 an ounce by 3:35 p.m. EDT (19 35 GMT), having hit a near three-week high at $1,609.91 earlier in the session.
Traders cited technical buying as Wednesday's rally lifted bullion above its chart resistance of 20- and 50-day moving averages. Also, active trading of the options on COMEX and the SPDR Gold Trust also supported prices.
U.S. gold futures for August delivery settled up $31.90 an ounce at $1,608.10, with trading volume at 60 percent above its 30-day average to be the strongest in almost 2 months, preliminary Reuters data showed.
Gold has held in a $75 range in July, its narrowest monthly spread since April. Weak seasonal buying in top bullion consumers such as India and China, waning inflows into gold-backed exchange-traded funds and euro zone debt jitters have limited price gains.
U.S. equities fell for a fourth day, with the S&P 500 stock index reversing early gains after new U.S. single-family home sales dropped by the most in more than a year.
OUTFLOW FROM SILVER ETF
Silver rose 1.4 percent to $27.32 an ounce. Confidence in the metal remains shaky, however, analysts said, with investors wary of taking profits in the traditionally volatile asset.
The world's No. 1 silver-backed exchange-traded fund, the iShares Silver Trust, posted an outflow 0.7 percent on Tuesday.
Gold's rise also pushed its premium over platinum above $200 an ounce for the first time since January.
Platinum group metals, which are largely used as catalytic converters by the auto industry, underperformed gold. Spot platinum rose 1.1 percent to $1,393.45 an ounce, while spot palladium gained 0.8 percent to $560.65 an ounce.
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