Gold Climbs to Highest in a Month on Chinese Demand

(REUTERS) -- Gold rose for a second day on Wednesday, hitting its highest in a month, as evidence of strong demand from major consumer China helped boost the price above a key technical level, and offset the impact of a softer euro.

Data showing record gold imports to China late last year has reassured investors that physical offtake is underpinning the market. China, the world's number two buyer of the precious metal, is preparing for the Lunar New Year this month, a key gold-buying period.

Spot gold was up 0.4 percent at $1,639.10 an ounce by 1447 GMT. U.S. February gold futures were up 0.5 percent at $1,640.00 an ounce.

Gold prices have risen 5 percent so far this year after a dismal December, vaulting above the 200-day moving average around $1,635 an ounce. Prior to December's sell-off, that had marked an important level of support, but since then has acted as stiff overhead resistance.

If we manage to close above that level today, it should be quite bullish, said Commerzbank technical analyst Axel Rudolph.

The move we have seen at the beginning of this year has been quite impulsive - it went up very quickly, stopped for a couple of days, then proceeded to go up. This is bullish momentum showing itself on the gold chart.

He said gold was likely to next run into resistance in the 1682-1700 area.

Its break to a one-month high of $1,646.90 an ounce has given investors more confidence to buy the metal, especially in light of improved demand in India - where the rupee's rise against the dollar has cut the cost of buying bullion for local consumers - and a sharp rise in Chinese imports.

China imported nearly a fifth more gold from Hong Kong in November than the previous month, continuing a trend of sharply rising purchases that has seen bullion flows to the mainland more than treble in the first 11 months of the year.

A record 102.525 tonnes of gold entered the mainland from Hong Kong in November, the Hong Kong Census and Statistics Department said.

Signs that China is importing a lot of gold are bullish for the market, primarily because this metal can't leave the country - it is not permissible to export gold, said UBS. And there is little doubt that volumes have increased dramatically.

Adding support to gold, dealers reported strong physical demand from India, the world's largest bullion buyer, after the rupee hit a one-month high against the dollar.

FLURRY OF TRADE

The volume of gold traded has risen in the last week, indicating more investors are active in the market once more.

According to data from CME Group, which offers the benchmark gold futures contract, volume on Tuesday topped 160,000 lots, reaching its highest since early December and about 25 percent above average turnover on a rolling-one month basis.

The prospect of aggressive monetary easing from the world's key central banks, including the European Central Bank, will keep sentiment for gold and silver bullish, it added.

Gold's 1.5 percent rise this week has been helped by a modest pick-up in the euro. The single currency eased on Wednesday, however, battling concerns about the ability of several euro zone nations to fund themselves, given sovereign debt yields remain high.

Gold usually trades inversely to the dollar, falling as the U.S. currency rises, when non-U.S. investors find it more profitable to sell the metal and book a higher profit when exchanging the dollars back into their own currencies.

Silver was down 0.4 percent on the day at $29.80 an ounce.

The gold/silver ratio, the number of ounces of silver needed to buy one ounce of gold, is around 54.78, having risen from 54.22 a week ago, indicating gold's modest outperformance.

Platinum was set for a third daily gain, up 1.3 percent on the day at $1,479.99 an ounce. The metal has been helped this week by reports of a high risk of power outages in South Africa, the world's largest producer of platinum.

Palladium was down 0.1 percent at $632.97 an ounce.