Gold rallies $20 to trade above $1,200 on weaker U.S. dollar

Investing.com - Gold prices rose above the key $1,200-level for the first time in more than two-weeks on Tuesday, as a broadly weaker U.S. dollar and an improving technical outlook lured investors back to the market.

On the Comex division of the New York Mercantile Exchange, gold futures for December delivery rose by as much as 1.71% to hit a daily high of $1,204.10 a troy ounce, the most since October 30.

Prices last traded at $1,202.60 an ounce during European morning hours, up $19.10, or 1.61%.

A day earlier, gold declined $2.10, or 0.18%, to settle at $1,183.50 an ounce as a stronger U.S. dollar weighed.

Futures were likely to find support at $1,146.00, the low from November 14, and resistance at $1,216.50, the high from October 30.

The euro rose to the highest levels of the session after data showed that German economic sentiment improved for the first time in 11 months in November.

The ZEW Centre for Economic Research said that its index of German economic sentiment rose by 15.1 points to a four-month high of 11.5 this month from October’s reading of minus 3.6.

Meanwhile, the greenback retreated from a seven-year high against the yen after Japanese Prime Minister Shinzo Abe announced snap elections and delayed a planned sales tax hike by 18 months.

The US dollar index, which tracks the performance of the greenback against a basket of six major currencies, declined 0.45% to 87.62.

Dollar weakness usually benefits gold, as it boosts the metal's appeal as an alternative asset and makes dollar-priced commodities cheaper for holders of other currencies.

Gold prices have been well-supported in recent days as investors returned to the market amid bullish chart signals.

Prices are up nearly 6% since hitting a four-and-a-half-year low of $1,130.40 on November 7.

Despite recent gains, gold prices are likely to remain vulnerable in the near-term amid indications a strengthening U.S. economic recovery will force the Federal Reserve to start raising interest rates sooner and faster than previously thought.

Expectations of higher borrowing rates going forward is considered bearish for gold, as the precious metal struggles to compete with yield-bearing assets when rates are on the rise.

On Wednesday, the Fed will release the minutes of its October policy meeting, at which it ended its bond-buying program in a widely expected decision.

Also on the Comex, silver futures for December delivery surged 32.6 cents, or 2.03%, to trade at $16.38 a troy ounce.

Elsewhere in metals trading, copper for December delivery declined 0.5 cents, or 0.16%, to trade at $3.035 a pound, as ongoing concerns over the health of China's property sector dampened appetite for the red metal.

The National Bureau of Statistics said in a report earlier Tuesday that home prices declined in 69 of 70 cities in October from September.

New home prices slumped 2.6% in October from the year-ago period, following a decline of 1.3% in September.

A cooler property sector not only weighs on demand for copper as construction material, but also dampens consumption from the home appliances sector.

China is the world’s largest copper consumer, accounting for almost 40% of world consumption last year.