(Reuters) - Gold hit one-month highs on Wednesday in its longest stretch of gains in over two months as investors once again sought the safety of bullion in the face of a euro drop and uncertain outcome to a key EU summit.
Gold is on track for its fourth consecutive day of gains, and it appeared to reprise its traditional role as a contrarian indicator after having behaved more like a risk-related asset over the last five weeks and having tracked equities and copper more closely than at any time in the last five months.
Bullion rose and Wall Street was flat as expectations of a comprehensive solution emerging from a second European Union summit have diminished as EU officials wrangle over how to scale up the euro zone rescue fund and over how much of a loss private bondholders will take on Greek debt.
"Investors have been looking for safety with the euro currency selling off. Also weakness in the U.S. equities dragged by disappointing earnings also helped gold," said Phillip Streible, senior market strategist at futures broker MF Global.
"If gold can close higher today, I think it can test resistance at 50-day moving average of $1,740 an ounce," he said.
Spot gold was up by 0.9 percent at $1,716.39 an ounce by 11:26 a.m. EDT, having risen by more than 1 percent earlier to a one-month high of $1,722.70.
Gold rose above $1,700 an ounce for the first time in a month on Tuesday, notching one of its biggest rally since 2008, fueled by the gloomiest U.S. consumer sentiment data in 2-1/2 years .
U.S. gold futures for December delivery were up $18 at $1,718.40 an ounce, having seen their largest traded volume in a week on Tuesday at nearly 200,000 lots, or 20 million ounces, topping the 30-day rolling average level of daily volume by its widest margin in a month.
Also, open interest in December gold futures staged its biggest daily rise in three months on Tuesday, pushing open interest up by more than 12,000 lots, or 12 million ounces, to over 273,000 lots, a three-week high.
Short-covering by option sellers also boosted prices as COMEX November options are scheduled to expire at the end of the trading day. The $1,700 November call has been a popular bullish option play, traders said.
EU SUMMIT SETS TRADING TONE
Also, anticipation over the outcome of the summit has seen a move by investors into gold in the past couple of days.
The incoming head of the European Central Bank threw the euro zone a lifeline hours before a crucial summit Wednesday by signaling the bank would go on buying troubled states' bonds to combat market turmoil.
"The EU summit is a bit of a two-edged sword. If the package is deemed credible, that would have to bring down bond yields across euro zone countries but would also bring down the perceived credit risk, which is negative for gold," said Credit Suisse analyst Tobias Merath.
This week so far has seen the largest two-day rise in global holdings of gold in exchange-traded products since early August, having increased by over half a million ounces to 67.768 million ounces.
In other metals, silver was up 0.1 percent at $33.23 an ounce, echoing the strength in gold.
Platinum was last up 1.7 percent at $1,582.99 an ounce, while palladium was up 1.1 percent at $643.97.