Gold Prices Jump More Than 4%, Snapping 3-Day Losing Streak

Gold prices rose more than 4 percent Tuesday, breaking a three-day losing streak, on a decline in the dollar and optimism German lawmakers this week will approve an expansion of Europe's bailout fund.

Since Wednesday gold has fallen more than 10 percent, the longest such plunge since 1983, as investors sold the yellow metal and piled into dollar assets like U.S. Treasuries in a search for liquidity.

But Tuesday European leaders appeared to be making some progress on containing the fallout from a Greek default. Such a fund is seen by some as the last possible way to stop contagion from a Greek sovereign debt default.

The mood change about Europe emboldened investors to use the dollars and dollar assets they have been acquiring recently to buy stocks. That, in turn, knocked down the dollar 0.09 percent and boosted Asian and European stock exchanges as much as 4 percent Tuesday.

Investors were also emboldened to buy the heavily discounted precious metals. Gold was up at one point on the Comex 4.57 percent and silver -- which has lost 24 percent of its value since last Wednesday -- jumped 9 percent.

Given that we haven't had any correction for months, this has brought better value to the market for people who want to get back into gold, Credit Agricole analyst Robin Bhar told Reuters. I think gold's bottomed out here.

Tuesday's rally may be temporary, given the high potential for bad economic news.

In the U.S., for example, the government said Monday that new home sales dropped to a six-month low in August, with prices falling the most in two years. Germany, meanwhile, is set to vote Thursday on expanding Europe's bailout fund; many fiscal conservative lawmakers oppose such a measure.

Longer term, though, fundamentals, like government deficit spending on both sides of the Atlantic and banks' vulnerability to the consequences of that deficit spending habit, continue to favor gold.

Euro area politicians and policymakers are still behind the curve in tackling the debt problems and in successfully containing or reversing contagion, said Barclays Capital strategist Suki Cooper.