Gold rose nearly 3 percent on Tuesday, hitting its highest since late October, as cautious comments from U.S. Federal Reserve policymakers prompted a sharp pullback in the dollar.
Dennis Lockhart, head of the Atlanta Federal Reserve, said late on Monday he was in no rush to drop the Fed's pledge to keep interest rates near zero for a "considerable time," while San Francisco Fed chief John Williams said the phrase was still appropriate.
That sparked a retreat in the dollar, which fell 1.1 percent against a basket of currencies before paring losses. The greenback saw its biggest one-day drop against the yen in eight months.
Spot gold rose 2.9 percent to as high as $1,238.10 an ounce and was last at $1,227.90 an ounce, up 2.1 percent. U.S. gold futures closed up 3.1 percent at $1,232.00 an ounce.
"It's a combination of dollar weakness and a breakthrough of the 1,200 and 1,208 levels in quick succession," Mitsubishi analyst Jonathan Butler said. "The latter is the 61.8 percent retracement of (retreat from) the October high to the November low."
A weaker greenback makes dollar-denominated gold cheaper for holders of other currencies, while investor aversion to risk increases bullion's attraction as an alternative investment.
The surge in gold confirmed a bullish continuation pattern with the next target level at $1,265, based on a measured move target, and then $1,282 as a bull flag pattern target, said Marnie Owen, global head of technical analysis for Informa Global Markets in New York.
European shares slid 2 percent as a further drop in oil prices hurt energy stocks, while the Greek market sank after its presidential election was unexpectedly brought forward. Brent crude oil hit a five-year low on Tuesday.
Further gains in gold prices will depend on the dollar and the timing of the Fed's move to raise rates. Higher rates would decrease demand for non-interest-bearing bullion.
Some bearish sentiment was reflected in the world's largest gold-backed exchange-traded fund, the SPDR Gold Trust. Its holdings resumed declines after a brief uptick and were close to six-year lows on Monday.
In physical markets, prices in top gold consumer China slipped to a discount of about 50 cents an ounce on Tuesday before recovering to trade at a slight premium.
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A policymaker with direct knowledge of the matter said on Tuesday that India would announce changes as early as this week to a rule requiring so-called star trading houses to export 100 percent of their gold imports.
The policymaker said the move would give these star trading houses "a free hand" without specifying any further.