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Gold prices edged up on Wednesday as buoyant physical demand from major consumers China and India offset the impact of a stronger US dollar.
Spot gold was up 0.3 per cent at $1,162.68 an ounce by 0639 GMT. Prices had touched their highest in three weeks on Tuesday at $1,163.52. US gold futures climbed 0.1 per cent to $1,163.20 per ounce.
“Physical demand from China and India is quite strong at the moment,” said NAB analyst Vyanne Lai.
“With the upcoming Chinese New Year there is a seasonally strong period for jewellery and in India the shortage of cash has prompted some safe-haven buying from Indian consumers as source of wealth.”
She added that policies of President-elect Donald Trump in the United States had been stoking appetite for gold as a hedge against inflation, despite the strong US dollar.
US factory activity sped to a two-year high in December amid a surge in new orders, while manufacturing in the euro zone grew at its fastest pace in five years.
The dollar index, which measures the greenback against a basket of currencies, was at 103.25 after climbing to 103.82 the previous day, its strongest since December 2002.
A firm dollar curbs the demand for commodities priced in the greenback by making them more expensive for the holders of other currencies.
Holdings of SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, dropped 1.01 per cent to 813.87 tonnes on Tuesday.
Holdings are down about 14 per cent since the US presidential election in November.
“We expect ... appetite to remain cautious at least for the time being,” said Barnabas Gan, an analyst at OCBC Bank in Singapore.
NAB's Lai said that if bond yields and stock prices rose, then demand for gold would likely diminish over the year.
“If the (US) rate hike frequency picks up we are likely to see bond prices rise further, that would in turn encourage investors to switch out of ETFs into alternative assets.”
Meanwhile, silver was up 0.6 per cent at $16.37 an ounce, after hitting near three-week highs in the last session. Platinum dipped 0.5 per cent to $932.40, having risen over 4 per cent the day before. Palladium gained 0.6 per cent to $713.30 an ounce. It climbed over 4.5 per cent on Tuesday.
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