Gold hit record highs near $1,200 an ounce on Tuesday as dollar weakness fueled buying of the metal as an alternative asset, while investors speculating on further gains were cheered by its recovery from Friday's lows.
Spot gold hit a peak of $1,198.70 an ounce and was bid at $1,194.90 an ounce at 5:21 a.m. EST, against $1,179.10 late in New York on Monday.
"The fact that we are seeing the dollar weaken is helping to drive gold," said Ole Hansen, senior manager at Saxo Bank.
He said investors had been cheered by the strength of gold's recovery after it fell to below $1,140 an ounce last week, with the fall being met with strong fund buying.
"Everyone was waiting for that correction, and the way gold recovered suggested there was a lot of buying lurking in the wings (among) people who missed the opportunity to get into the market in the first place," said Hansen.
U.S. gold futures for February delivery on the COMEX division of the New York Mercantile Exchange also hit a record $1,200.50 an ounce and were later up $13.70 at $1,196 an ounce.
The dollar index .DXY, which tracks the U.S. currency's performance against a basket of six others, fell on Tuesday as more clarity about Dubai's debt situation eased some concerns over the region's stability, lifting risk appetite.
The dollar also pared gains against the yen after comments from the Bank of Japan on monetary policy.
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.
Other commodity prices also firmed on the back of the weaker dollar, with base metals firming and oil rising more than half a percent to nearly $78 a barrel.
Gold tends to track crude prices, as the metal can be bought as a hedge against oil-led inflation.
In the physical market, the world's largest gold-backed exchange-traded fund, the SPDR Gold Trust, said its holdings rose 2.134 tonnes to 1,129.994 tonnes as of November 30.
Indian gold offtake abated on Tuesday as prices resumed their upward trend, after a modest pick-up in the last few sessions when traders stocked up in anticipation of wedding demand.
Jewelers in India, the world's largest gold consumer, returned to the physical market after bullion fell from a record on Friday. Sales of scrap persisted in other parts of Asia on Tuesday, cutting premiums, dealers said.
Analysts say they expect the gold market to continue taking support from fund and other investment demand, and further buying from central banks.
News in early November that the Reserve Bank of India had bought 200 tonnes of gold, closely followed by acquisitions by Russia, Sri Lanka and Mauritius, sparked a 13 percent price rise that month.
"We expect to see further announcements of Central Bank gold purchases over the coming months as these banks realign their U.S. dollar and other asset holdings," said Fairfax analyst John Meyer in a note.
On the supply side, Harmony Gold Mining Co., the world's No. 5 producer of the metal, said output was suspended on Tuesday at its Merriespruit 3 shaft in South Africa after a mineworker was killed the day before.
Among other precious metals, spot silver was bid at $18.70 an ounce against $18.45.
Platinum was at $1,468 an ounce against $1,452, while palladium was at $378 against $363.50, having earlier touched a high of $379 an ounce, its firmest since August 2008.
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