Gold prices found support just below $1,230 per ounce in Asia on Tuesday and then pushed sharply higher during the day. The dollar was on the defensive during the European session with losses against commodity currencies as the Australian dollar pushed to 10-month highs and EUR/USD pushed above 1.1350. Oil prices maintained a firmer tone with WTI holding above the US$41.0 p/b level. To the extent that rising oil prices were due mainly to a weaker dollar, the move tended to push gold prices higher.

Although risk appetite held firm with European equities moving sharply higher to three-month highs, there was a firm underlying tone to gold prices. Silver prices advanced further to 10-month highs with speculation over a bull market, which tended to pull gold prices higher as well.

US housing data was weaker than expected with housing starts falling 8.8% in March to the lowest level since October after a revised 5.2% gain previously, while building permits fell 7.7% for the second successive retreat. Although the data is volatile on a monthly view, there was a fresh dip lower in the dollar, which pushed gold above $1250.

The US currency remained generally on the defensive into the European close with EUR/USD breaking above the 1.1350 level, while commodity currencies continued to advance and WTI moved above US$42.5 p/b.

In this environment, gold maintained a firm tone with a peak around $1255 as silver gains remained an important positive influence.

China moved to introduce a yuan-denominated gold-price fix in an attempt to become a global price-setter and this may increase volatility during the Asian sessions.

Markets are unlikely to get much more of a lead from Federal Reserve officials ahead of next week’s policy meeting given the normal period of silence in the week before a meeting. There will be some caution ahead of Thursday’s ECB policy meeting.

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