GOLD futures rose for a second day this morning, reaching six-week highs on hopes Greece would scrap its bailout referendum and keep the debt-laden country from defaulting.
The yellow metal also drew support as the surprise interest rate cut by the European Central Bank boosted the metal's appeal as an alternative asset. The most actively traded gold contract, for December delivery, rose $US35.50, or 2.1 per cent, to settle at $US1765.10 a troy ounce on the Comex division of the New York Mercantile Exchange, the highest settlement price since September 21.
Equities markets on both sides of the Atlantic climbed, pushing gold higher as investors bet Greece would drop its plans for a referendum.
Precious metals had slumped along with commodities and equities early this week after Greek Prime Minister George Papandreou said he would put the country's bailout measures to a referendum, raising the prospect a "no" vote would lead the country to lose its financial backstop and default on its debt.
While some investors see gold as a safe haven that should hold its value well when the outlook for other assets is grim, the metal has moved largely in line with commodities and other risky assets in recent months. Worries about a potential credit crunch in Europe have caused traders to cash out of the metal amid economic storm clouds, rather than add to their holdings.
"The focus remains on Greece," said Matt Zeman, head of trading with Kingsview Financial. The Greeks "seem to go back and forth", he said, taking gold along for the ride.
France and Germany warned Greece aid to the country would be suspended until a referendum takes place, and senior Greek officials said the country's socialist leadership had entered talks yesterday to form a unity government and salvage its international support.
Opposition leaders called for Mr Papandreou's resignation.
Gold's earlier gains came after the ECB said it would cut interest rates, a move likely designed to stimulate spending in the eurozone's struggling economy.
"Any time you have a cut in rates, it makes gold a great alternative" asset, said George Gero, vice president and metals strategist with RBC Capital Markets.
Lower interest rates make gold, which offers no guaranteed yield, more attractive compared with interest-bearing investments. The reduced rates also raise the prospect that easy-credit policies will increase inflation down the line and devalue paper currencies.
Gold's steep gains since the financial crisis have been helped by governments and central banks easing the availability of credit. As a result of the government moves, investors bet the excess cash in the system would reduce the value of the world's main reserve currencies.
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