Gold for August delivery settled up $24.10, or 1.5%, at $1,621.80 an ounce on the Comex division of the New York Mercantile Exchange on Tuesday, before turning slightly lower in after hours dealings, dipping below $1,620.
The precious metal was bolstered by expectations that central banks around the world would move to stimulate economic growth as data from the US, Europe and China continue to disappoint.
The ECB is expected to lower interest rates when it meets on Thursday while China could follow up its surprise rate cut last month with further easing of banking regulations this week. Key US employment data out on Friday during a holiday-shortened trading week would also give an indication of the US Federal Reserve's next move.
Gold was also dragged higher by crude oil which jumped to a month high as jitters about Iran missile tests worried the markets. A weaker dollar also boosted the yellow metal.
"I think this is (a) positioning for geopolitical risk in the Middle East," said Bill O'Grady, chief market strategist at Confluence Investment Management in St. Louis.
"[European] union's leaders announced a new plan to pump cash into troubled banks within Spain and Italy, which will in turn use that money to purchase sovereign bonds, and stop forcing austerity measures. This measure signals that further money printing is likely, which should bode well for precious metal investors, as well as holders of other hard assets."
Market Watch reports:
“The U.S. data [Monday] reminds the market that while most of the focus remains on Europe, the U.S. economy continues to slide, and if this carries on it could clearly counterbalance any of the positive market vibes that came from the recent EU summit,” said Steven Barrow, currency strategist at Standard Bank.
“People are expecting some form of easing both in the U.S. and Europe,” Frank McGhee, the head dealer at Integrated Brokerage Services LLC in Chicago, said in a telephone interview. “The chatter is growing louder.”