Gold prices rose on Tuesday as the dollar weakened and U.S. Treasury bond yields retreated on lingering uncertainty over when the Federal Reserve will reduce its economic stimulus program.
Gold fell almost 1 percent earlier in the session, then turned higher as speculators bought futures to cover their bearish bets ahead of Wednesday's release of the minutes of the Fed's July policy meeting.
Silver also recovered after initially tumbling 4 percent.
Traders said the uncertainty over when the U.S. central bank will taper its $85 billion in monthly bond purchases benefits gold, as bullion prices have already factored in the scaling back of stimulus from as early as September.
The metal has gained 8 percent over the last two weeks. This has helped turn the gold option market less bearish with the high volatility premium on puts falling and some calls no longer being offered at a discount.
"I have noticed a small reversal in call skew. People are starting to bid for calls again and the discount is diminishing," said Albert Ng, a market maker and portfolio manager at Aurum Options Strategies in New York.
Spot gold was up 0.5 percent at $1,372.67 an ounce by 1:44 PM EDT (1744 GMT), rebounding $20 from its low of
U.S. Comex gold futures for December delivery settled up $6.90 at $1,372.60 an ounce, with trading volume about 70 percent below its 30-day average, preliminary Reuters data showed.
Gold rose as the dollar index .DXY fell 0.4 percent, while
the yield for 10-year U.S. Treasuries dropped from a two-year high as investors scooped up relatively cheap U.S. government debt.
PHYSICAL DEMAND SLOWS
Demand for U.S. gold coins has plunged in recent weeks as the unprecedented buying by retail investors that helped bullion prices recover from their historic selloff four months ago has almost vanished.
Gold buying from China and India, the world's largest bullion consumers, also showed signs of slowing.
In India, traders said they will start importing gold again over the next week, after the county's central bank clarified a rule that stopped the flow of the precious metal into the country at the end of July.
Silver was down 0.4 percent at $23.02 an ounce. Platinum rose 0.8 percent to $1,514.24 an ounce, while palladium eased 0.3 percent to $744.93 an ounce.
1:44 PM EDT LAST/ NET PCT LOW HIGH CURRENT
SETTLE CHNG CHNG VOL
US Gold DEC 1372.60 6.90 0.5 1351.60 1378.00 127,119
US Silver SEP 23.071 -0.095 -0.4 22.280 23.310 55,372
US Plat OCT 1525.50 16.50 1.1 1496.70 1527.10 7,241
US Pall SEP 749.65 -3.25 -0.4 743.35 756.45 3,561
Gold 1372.67 7.19 0.5 1352.20 1376.90
Silver 23.020 -0.100 -0.4 22.330 23.310
Platinum 1514.24 11.94 0.8 1500.25 1523.50
Palladium 744.93 -2.57 -0.3 747.00 753.97
TOTAL MARKET VOLUME 30-D ATM VOLATILITY
CURRENT 30D AVG 250D AVG CURRENT CHG
US Gold 132,857 189,833 189,713 23.3 0.25
US Silver 70,977 51,004 53,203 34.11 1.11
US Platinum 7,403 9,182 12,526 21.81 0.00
US Palladium 5,139 4,089 5,271