By: Eddie van der Walt

London 17/10/2012 - Gold was fractionally higher on Wednesday morning, extending its recovery from early-week lows, while the euro made further gains on the dollar.

Spot gold was last at $1,749.54/1,749.84 per ounce, up $1.44 on the close but $20.90 above Monday's low.

"Commodities generally reversed yesterday’s losses on improved market sentiment after better-than-expected European data, US data and corporate earnings," ANZ said late on Tuesday.

"The improved tone in the euro and gains in equities has led to a positive start for the metals," FastMarkets analyst James Moore added.

The euro was last above 1.31 against the dollar and the dollar index dipped to 79.10. The single currency has benefitted from renewed optimism about a Spanish request for a bailout from the ECB, with both the Spanish and German governments making supportive noises.

Hope also lingers that eurozone leaders may take further steps towards closer integration when they meet in Brussels for the first of three pre-Christmas meetings. Germany in particular appears to be deeply supportive of a deal that will involve closer fiscal unity.

The Spanish 10-year bond yield reacted positively, dipping below 5.5 percent, with that of Italy falling to 4.81 percent.

"[Gold] prices gained despite better-than-expected US data, suggesting gold could be shifting back towards traditional physical market trades again, rather than reducing expectations of additional US easing," ANZ added.

Physical buying, particularly from major consumer India, has long been expected to pick up ahead of the key festival season that culminates in Diwali.

This year, Diwali starts on November 13 and runs for five days until November 17, with much gold buying for auspicious reasons expected during this period.

Gold's relative strength was an echo of market sentiment in general, with the Nikkei and Hang Seng both up about one percent, while the FTSE and the DAX were higher.

In other commodities, Brent crude oil was virtually unchanged at $113.66 per barrel, with both three-month copper and aluminium fractionally higher on the LME.

But gold still looks vulnerable from a technical perspective, FastMarkets analyst Jono Remington-Hobbs said.

"While the stochastics have crossed higher and the metal has formed a bullish candle reversal, we are unsure if this constitutes a sufficiently strong signal to chase prices higher given the overhead resistance between $1,755 and $1,766 and moreover because gold has formed a lower low," he said.

The data calendar is light today but important US housing market figures are due later, with 810,000 new residential building permits expected to have been issued in October.

But the Chinese will release third-quarter GDP figures and the US its unemployment claims on Thursday.

In the rest of the precious metals complex, silver was unchanged at $33/33.05 per ounce, platinum gained $7.30 to $1,648.30/1,658.30 and palladium added $5.50 to $642/646.90.


(Editing by Mark Shaw)