Gold traded near a two-month peak on Tuesday, as a drop in European stock prices after soft German economic data helped bullion build on last week's gains.
The precious metals pared gains, but remained close to their earlier peaks, after U.S. new-home sales and consumer confidence data beat expectations. Gold posted its biggest weekly rise in three months last week as fighting in Iraq escalated, taking oil to nine-month highs, and as the Federal Reserve's lack of commitment to raising interest rates sparked a wave of short-covering.
hit a peak of $1,325.70, but drifted lower to near $1,320 an ounce as traders booked profit. U.S. gold futures for August delivery settled up $2.90 at $1,321.30, while silver reached its highest since mid-March.
Gold posted its biggest weekly rise in three months last week as the threat of escalating tensions in Iraq and the Federal Reserve's lack of commitment to raising interest rates sparked a wave of short covering.
Gold has been boosted recently by escalating violence in Iraq, where Sunni tribes have joined a militant takeover of northern Iraq. Oil prices were pushed to 9-month highs last week, with a consequent knock-on effect on gold.
Supporting gold, European stocks retreated on Tuesday, surrendering early gains, as investors were unnerved by growing signs of economic weakness in Europe.
Investor sentiment towards bullion has improved, with the world's largest gold-backed exchange-traded fund, New York-based SPDR Gold Trust, recording a 2.4 tonne increase in its holdings on Monday to 785.02 tonnes. However, physical demand is still weak in the major markets of China and India as consumers expect prices to fall.
--By Reuters. For more information on precious metals, please click here.