Gold rallies to 2-month high on safe-haven bids

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SummaryGold firmed after rallying to its highest in two months on Monday as equities fell on worries.

Gold firmed after rallying to its highest in two months on Monday as equities fell on worries that capital outflows from emerging economies would continue, boosting bullion's safe-haven appeal.

Asian shares dived as emerging markets remained under pressure, with the U.S. Federal Reserve poised to continue tapering stimulus and tighter credit conditions in China raising fears of a sharper economic slowdown.

Spot gold was steady at $1,268.60 an ounce by 0742 GMT, after earlier hitting a two-month peak of $1,278.01.

U.S. gold futures climbed 1 percent, while other precious metals also edged higher.

"A poor performance from U.S. equities lifted sentiment and boosted safe-haven demand for gold," said Joyce Liu, an investment analyst at Phillip Futures.

Gold is often seen as an alternative investment to risky assets such as stocks.

But Liu warned that a correction was possible given the recent sharp rally in prices and resistance around $1,275.

Other analysts also said the gold rally could be cut off as the Fed on Tuesday begins a two-day policy meeting in which it is expected to announce another $10 billion reduction in its bond purchases.

"Bullion prices at current levels may have largely priced in a $10 billion taper," HSBC analysts said in a note.

"However, this does not preclude prices from falling should the Fed announce another round of taper."

Gold prices climbed to record highs in 2011, helped by a series of stimulus measures meant to bolster a weak U.S. economy. With improvements last year in the U.S. labour and housing markets, the Fed is rolling back its support.

CHINESE DEMAND

With the rally in gold prices, which have gained for five straight weeks, purchases from China - the world's biggest gold consumer - slowed on Monday with volumes lower than Friday's.

Premiums for 99.99 percent purity gold on the Shanghai Gold Exchange steadied at about $10, after falling earlier to $7.

Among other precious metals, platinum gained as South Africa's main platinum miners union was set to resume government-brokered talks with the world's top three producers, in an effort to end a strike.

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