Gold settled about 2 percent higher on Thursday as sharp losses in U.S. equities and disappointing Chinese manufacturing data boosted bullion's safe-haven appeal.
Gains in the metal's price accelerated after it rose above key technical resistance at $1,260 an ounce, a level where it had repeatedly failed. The U.S. dollar's tumble following a strong manufacturing report in the euro zone also lifted gold prices to a nearly two-month high.
Bullion investor sentiment was lifted after manufacturing data in China showed that a mild slowdown at the end of 2013 in the world's second-largest economy had continued into the new year.
"Market participants were ready to sell their equities holdings and to add to their gold positions on the weaker-than-expected Chinese data," said Carlos Sanchez, a portfolio manager and director of commodities and asset management at CPM Group in New York.
Chart: Precious Metals
Spot gold was last up 2.3 percent to $1,264 an ounce, within reach of a two-month high of $1,267.26 set in early December.
U.S. gold futures for February settled 1.9 percent higher at $1,262.30 an ounce.
U.S. stocks measured by the Standard & Poor's 500 index fell nearly 1 percent on the Chinese data and a mixed bag of recent U.S. corporate earnings.
On charts, gold appears to form a bullish technical double-bottom pattern connecting the lows of June and December at prices below $1,200 an ounce.
In the short term, technical selling could pressure gold, as bullion was near a long-term downward trendline and its 100-day average at $1,277 an ounce, analysts said.
Adam Sarhan, chief executive officer of Sarhan Capital in New York, said gold's double-bottom pattern will be confirmed if the price rises above $1,433 an ounce, the peak at the middle of the bullish formation.
Bullion prices were also underpinned after the leader of India's ruling Congress party, Sonia Gandhi, asked the government to review tough import restrictions on gold, which include a record 10 percent import duty, a television channel said on Thursday.
—By Reuters
