Gold extended gains on Tuesday to climb to its highest since October, boosted by safe-haven demand triggered by a continued slump in oil prices and weakness in some equities markets.
Asian stocks were mostly on the defensive on Tuesday as the continuing slide in crude oil prices turned investors cautious towards risk assets. Brent crude and US. WTI both fell to their lowest in almost six years.
Weaker oil prices tend to hurt gold as they reduce the need for the precious metal as a hedge against oil-led inflation. But as equity markets have been hit by the slump in oil prices and concerns have risen over its economic impact, flight-to-safety demand has bolstered the metal.
Gold, typically seen as an alternative investment to riskier assets such as stocks, rose as investors channelled money into the asset along with other safe havens such as the yen.
Spot gold rose as far as $1,238.81 an ounce, its highest since October 23, and was trading up 0.3 percent at $1,237.15 at 0746 GMT. U.S. gold futures climbed to $1,242, also the highest since October.
MKS Capital trader James Gardiner said buying around the $1,240 area "might result in a sharp spike into the mid-40's if the metal spends some time today consolidating around $1,238-39".
Other traders said weakness in the dollar and buying in Chinese physical markets were also supporting prices.
However, not many were convinced gold could hold the gains through the year.
Barclays expects gold to breach the $1,130 level this year, the metal's lowest since 2010.
"We expect gold prices to test new lows in 2015 as they battle formidable hurdles in the form of the dollar strengthening against the euro to levels last reached over 10 years ago and the first rate hike in the United States in nine years," Barclays analyst Suki Cooper said in a note.
Strong US economic data in the last few months have led many in the market to expect the U.S. Federal Reserve to increase interest rates this year for the first time since 2006.
The US economy is motoring ahead in its recovery, probably putting the Fed in a position to raise rates by the middle of the year, Atlanta Fed President Dennis Lockhart said on Monday.
Higher rates could dent demand for gold, a non-interest-bearing asset, while boosting the dollar.