(Reuters) - Gold rose towards $1,640 an ounce on Tuesday and other precious metals rallied as a rebound of the euro versus the dollar made dollar-priced assets more attractive to holders of other currencies and after bullion breached a key chart level.
Gold's rise above a 200-day moving average, which gave way in mid-December, at $1,634 an ounce prompted fresh buying, with technical analysts saying a close above this level could spark fresh momentum for the metal, which fell 10 percent last month.
Spot gold was up 1.6 percent at $1,637.15 an ounce at 1323 GMT and has climbed nearly 5 percent from the start of the year. U.S. gold futures for February delivery were up by$30.90 an ounce at $1,638.90.
"I would expect that weaker dollar, stronger gold relationship to drive the market for the year," said Macquarie analyst Hayden Atkins.
"A big part of the weakness into the end of (last) year was people taking profits and liquidity being a bit lower," he said. "I would expect that to unwind ... you don't have that length there any more."
The euro rose to a session high versus the U.S. unit on Tuesday as demand for the single currency from sovereign buyers and macro funds, which are designed to profit from economic events, triggered stop-loss orders on short positions.
Data from the Commodity Futures Trading Commission showed record euro net short positions, and analysts expect the single currency to benefit from bouts of short-covering. The euro is down 1 percent so far this year.
European shares also rose after positive corporate results, while safe-haven German bunds fell. Despite this, sentiment towards European assets remained fragile as investors worried about euro zone debt levels. .EU
"The market is still in the grip of the sovereign debt crisis in the euro zone, with auctions of Spanish and Italian government bonds due at the end of the week," Commerzbank said in a note.
"It is questionable whether the entire planned volume can be placed on the market. Gold should be well-supported against this backdrop, and also given the current high physical demand."
Buyers in India, the world's biggest gold consumer, took advantage of a drop in local prices to a one-week low to stock up ahead of the wedding season beginning later this month, dealers in Mumbai said.
"Buying will continue until March," said Harshad Ajmera, proprietor of JJ Gold House in Kolkata.
India's central bank has allowed four more banks to import precious metals, a move that would boost competition and help reduce premiums in the world's number one importer of bullion.
Silver was up 3.7 percent at $30.05 an ounce, largely tracking gold.
PLATINUM PROSPERS
Platinum group metals were the biggest risers in percentage terms, with spot platinum up 3.1 percent to $1,467 an ounce and spot palladium up 4.3 percent at $639.50 an ounce. Platinum earlier hit a one-month high at $1,467.50.
The gold/platinum ratio -- a measure of the number of platinum ounces needed to buy an ounce of gold, which has typically held below 1 -- retreated to 1.12 after hitting its highest in at least 25 years on Monday at 1.16.
As well as riding on gold's coat-tails, platinum was benefiting from reports that Eskom, the power utility of major platinum producer South Africa, had warned of a power shortage.
Platinum's cheap price compared with gold and the threat of supply constraints from South Africa have made it attractive to buyers, analysts said, although stocks are still relatively plentiful and the demand outlook in Europe is soft.
"Near term, the possibility of a short-covering rally cannot be ignored. But it doesn't really change the obstacles that platinum will likely encounter this year," UBS said in a note.
"Fundamental support alone, from the supply side in this case, is clearly not a big enough reason to prompt investors to return to platinum in their droves," it added.
"We have few doubts that platinum will be trading much higher than current levels in six months from now, but for now, the potential for further negative twists and turns in the wider macro environment presents too strong of a challenge for investors to rush back in."
