A rescue plan

NEW YORK (MarketWatch) -- Gold and metals futures rallied on Tuesday, as talk of a German plan to rescue Greece led stocks to soar, removing safe-haven demand for the dollar and lifting commodities.

Financial Times Deutschland first reported the news on its Web site, and work on a rescue plan was confirmed by Michael Meister, deputy leader of the Christian Democratic Union/Christian Social Union in the Bundestag.

"As far as gold is concerned, it is getting a boost today from the stronger euro and a weaker dollar," said Douglas Keller, analyst at Harvest Capital Services.

Gold for April delivery finished up $11, or 1%, at $1,077.20 an ounce at the New York Mercantile Exchange.
The contract had gained 1.3% on Monday at the New York Mercantile Exchange.
After coming under heavy selling pressure last week, gold might be advancing again but still "did not break through the $1,080 area easily," said Leonard Kaplan, an analyst with Prospector Asset Management.

Gold, he said, was following the rally in stocks and crude-oil futures, which received an early lift on hope that a rescue for Greece might be underway.

Talk of a European bailout of Greece started early Tuesday after European Central Bank President Jean-Claude Trichet's earlier-than-planned departure from an event in Australia to attend a meeting of European Union leaders in Brussels on Thursday. See full story.

Following the latest reports from Germany, the euro rose nearly 1% to $1.3782, pressuring the dollar, which has been used as a safe haven in recent weeks.

A weaker dollar tends to boost gold and metals as it makes them cheaper for holders of other currencies. Gold also loses its appeal as a hedge against weaker currencies.

The dollar index (DXY 79.79, -0.51, -0.63%) , which tracks the performance of the greenback against a basket of currencies, fell 0.8% to 79.81. Read Currencies.

U.S. stocks rallied on Wall Street, with the Dow industrials (INDU 10,059, +150.25, +1.52%) recently up more than 176 points. Read Market Snapshot. And crude oil futures jumped 2.5% in recent action. See Futures Movers.

Concerns about deficits in Greece, Spain, Portugal and Ireland have put markets under heavy pressure in recent weeks, leading investors to stay away from riskier growth-oriented bets such as commodities.

"The investment community has had a rapid change of heart over the last couple of weeks and decided that risk, for now anyway, is off the table," analysts at RBC Capital Markets wrote in a note.

Since Monday, however, hopes that the debt situation in Europe will be dealt with helped restore some degree of risk appetite among investors.

Also helping gold was news that China's sovereign-wealth fund bought 1.45 million shares of the SPDR Gold Trust (GLD 105.41, +1.37, +1.32%) , the largest exchange-traded fund backed by gold. Read more on China's holdings.

Source: Wall Street Journal