SINGAPORE: Gold regained strength on Friday after an early drop in prices spurred bargain hunting from investors in Asia, while a steady euro and rising equities offered additional support for the metal, which is heading for its third week of gains.
Consumers in China helped bullion jump to its highest in more than a month this week, and other consumers made last-minute purchases before the long Lunar New Year break starts next week. Gold has gained around 6 percent so far this year.
Spot gold added 0.07 percent to $1,657.89 an ounce by 0718 GMT after falling to a low around $1,653. It had hit a high of almost $1,670 an ounce on Thursday, its strongest since mid-December, before losing some of the gains due to weak U.S. inflation data.
Bullion struck a record of around $1,920 last September. "Gold has had a fairly good run so far this year, maybe this is time to consolidate a little. A pause here would probably be a healthy sign. After that, I think the next move is likely to be up towards $1,680," said Nick Trevethan, a senior commodity strategist at ANZ bank in Singapore.
"I think physical flows may slow a little next week. Chinese buyers will still take the time to come to the market if prices fall significantly. So, I think there's going to a floor under the market, initially at $1,650, but I can't see a big fall to below $1,600."
U.S. gold for February rose $3.6 an ounce to $1,658.10 an ounce.
Shares in Asia rose to fresh two-month highs on Friday as solid euro zone sovereign debt sales and signs that Greece may be nearing a vital debt-swap deal eased concerns over Europe's refinancing capability, boosting appetite for riskier assets.
Gold often tracks the fortunes of the euro and stocks because of its safe-haven status, which allows speculators to sell the metal for cash to cover losses in other markets, especially during the period of uncertainty in Europe.
"Gold has gone up so much since the start of the new year, so there's profit taking. The Chinese guys are on the buying side. They have pushed up the market but I think at the higher end, people are cautiously bullish," said a physical dealer in Hong Kong.
"The funds are still wondering whether there will be a recession, or whether the crisis in Europe will spread."
Other dealers said physical demand also stirred up trading in Southeast Asia.
"All customers are buying and selling a couple times in a session. The Thais are still on and the Indonesians as well. They are mostly on the buying side since this morning," said a dealer in Singapore.
"But I think the majority of people think that if the price does break the high of $1,680, it may correct back."
In the energy market, Brent crude held steady above $111 on Friday with investors betting oil demand would grow as Europe's funding worries ease amid supply concerns over Iran's tensions with the West.
