Gold prices rally off lowest since July on technical buying

Investing.com - Gold prices rallied off the lowest level since July on Tuesday, as investors returned to the market to cover short positions amid speculation futures moved into oversold territory.  

On the Comex division of the New York Mercantile Exchange, gold futures for February delivery traded at USD1,252.65 a troy ounce during European morning trade, up 0.9%.

Comex gold prices rose to a session high of USD1,257.85 a troy ounce earlier.

The February contract tumbled to USD1,226.40 a troy ounce on Monday, the lowest since July 8, before trimming losses to end down 0.24% at USD1,241.60 a troy ounce.

Gold futures were likely to find support at USD1,226.40 a troy ounce, the low from November 25 and resistance at USD1,275.70, the high from November 20.

A weaker U.S. dollar contributed to gains. The dollar index, which tracks the performance of the greenback against a basket of six other major currencies, was down 0.25% to trade at 80.77, moving off the previous session’s high of 81.06.

Dollar weakness usually benefits gold, as it boosts the metal's appeal as an alternative asset and makes dollar-priced commodities cheaper for holders of other currencies.

Disappointing U.S. pending home sales data on Monday reduced expectations the Federal Reserve will start tapering its bond-buying program as soon as December.

The National Association of Realtors said its pending home sales index declined 0.6% in October, confounding expectations for a 1.3% gain.

Investors are now looking ahead to a report on U.S. housing starts due later Tuesday to further gauge the strength of the economy and the need for stimulus.

Minutes of the Fed’s October meeting published last week revealed that the central bank could start scaling back its USD85 billion-a-month asset purchase program in the “coming months” if the economy continues to improve as expected.

Prices of the precious metal are down approximately 26% this year on concerns the Fed would start tapering its USD85-billion-a-month asset-purchase program by the end of the year.

Gold tumbled during Asian trading hours on Monday as investors reacted to news that Western powers reached a historic deal with Iran over its nuclear program.

Elsewhere on the Comex, silver for March delivery climbed 1.05% to trade at USD20.14 a troy ounce, while copper for March delivery inched up 0.2% to trade at USD3.237 a pound.