LONDON—Spot gold gained in Europe as a stronger euro boosted commodity markets.
Industry participants say that firm physical demand should ultimately keep prices moving higher, investors remain cautious over the near-term outlook for the precious metal.
The market is becoming increasingly difficult to trade, say analysts, with prices changing direction unexpectedly.
"Gold has stepped into new territory, acting like a hybrid of a risk asset and a safe haven, as it tries to find a balance between the two opposing forces," said UBS analyst Edel Tully.
"This has made trading the yellow metal very challenging, as while one can have a view on an event such as U.S. payrolls for example, deciphering how gold reacts has become a lot more difficult. And while buyers are nimbly returning, it is no surprise that there is caution given the struggle for conviction."
Wednesday morning, the spot price of gold was $1,686.55 a troy ounce, up from bid levels of $1,663.20 late in New York on Tuesday. Base metals, crude oil futures and soft commodities were also higher, as were European equity markets.
A jump in the euro, which is trading at its highest level against the dollar since Sept. 16, is spurring the rise across the dollar-denominated commodities, which are cheaper for buyers using the common currency when the euro rises.
Expectations of a plan to recapitalize ailing European banks also boosted confidence. European Commission head Jose Manuel Barroso said he would announce proposals Wednesday.
Investors appear to have easily shrugged off Slovakia's "no vote" on the expansion of the European Financial Stability Facility, market participants said.
"The outcome of the vote was widely expected, and the Parliament will stay in session this week for a second vote in which the expansion will almost certainly be approved," a trader said.
Physical demand out of Asia is expected to provide a key support to elevated prices heading into the end of the year, particularly as India's Diwali festival, one of the most significant gold-buying periods for the country, approaches.
"That gold appears supported at $1,660 an ounce adds to the upside risk: if prices fail to dip, buyers will be forced to come in at higher levels, further pushing up prices," said UBS's Ms. Tully.
Other precious metals also traded higher in Europe. Spot silver was at $32.778 per ounce, compared with bids of $32.14 in New York, while spot platinum was at $1,547, from $1,518. Spot palladium had risen to $611 per ounce from $602.
Write to Rhiannon Hoyle at rhiannon.hoyle@dowjones.com
