Gold ends above $1,261 as bulls trample on Fed doubts

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Gold settled more than 2 percent higher and near a three-week high on Tuesday, boosted by technical buying and funds' short-covering in thin trade ahead of the Federal Reserve's December policy meeting, in which it is expected to begin trimming its monetary stimulus.

Bullion posted its biggest three-day rise in nearly two months and ended above $1,250 an ounce—a level gold had failed to breach in the last three weeks—triggered by heavy buy orders, traders said.

Some funds bought to cover short positions ahead of the Fed's policy meeting next week, traders said.

Chart: Precious Metals

Spot gold surged 2 percent to $1,267.26 an ounce, its highest since Nov. 20. It was last up 1.7 percent, to $1,262 an ounce.

U.S. gold futures for February delivery settled 2.2 percent higher at $1261.10 an ounce.

"Investors are starting to realize that Fed tapering will come, but the Fed is also likely to be behind the curve in raising interest rates,'' said Axel Merk, portfolio manager of California-based Merk Funds, which has about $450 million worth of assets under management.

"Gold can do quite well in a high-inflation environment,'' Merk said.

During the last three sessions, gold has gained 3 percent, the biggest three-day rise since Oct. 17.

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