Sour Outlook for U.S. Helps Lift Gold

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"Gold demand expected remain robust for the rest of the year."

Two reports on the U.S. housing market in the past two days have painted a bleak picture of the sector, triggering a flight from risk across financial markets that has boosted gold.

"U.S. Treasury yields are down, Bunds are at all-time lows. It's not a surprise that gold should be pushing higher in that environment," said Tom Kendall, precious metals analyst at Credit Suisse in London.

Spot bullion prices rose more than 2.5% from their trough on Tuesday to a peak of $1,241.30 an ounce.

A fall early on Tuesday had triggered buying interest from investors, traders said. There was also significant buying interest from a central bank, they added.

Central banks have been net sellers of gold for the past two decades, adding a source of supply to the market and putting downward pressure on prices. But that trend appears to be reversing: net sales from the so-called "official sector" fell to their lowest since 1989 last year, according to GFMS, the precious metals consultancy.

Some central banks, such as those of Russia, China and India, have been buying gold, and many in the industry believe the sector could be a net buyer this year. In the second quarter, purchases of gold by the official sector exceeded sales by 7.7 tons, according to the latest quarterly data from the industry-backed World Gold Council, released on Wednesday.

The WGC said it expected gold demand to remain robust for the rest of the year, driven by consumers in China and India.

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