By Moming Zhou & Myra P. Saefong, MarketWatch
NEW YORK (MarketWatch) -- Gold futures climbed nearly 2% Monday to above $1,110 an ounce as the U.S. dollar weakened on the first full trading day of the new year, raising the metal's investment appeal.
Other commodities also gained, getting a lift after purchasing managers in China and Great Britain reported stronger-than-expected manufacturing activity. Palladium rose to the highest level in more than 17 months.
Gold for February delivery rose 1.9% to $1,117.30 an ounce on the Comex division of the New York Mercantile Exchange, after rising as high as $1,119.70 earlier.
Futures prices ended the year's trading up 24% to mark their ninth-consecutive yearly gain, but they are off their record high above $1,220 an ounce seen in early December.
"Positive manufacturing data from China has given equities and commodities a lift," said James Moore, an analyst at TheBullionDesk.com. Gold prices "in the short-term will continue to look to the dollar for direction."
Investors will increase "their exposure as a way to offset devaluation of fiat currencies and take advantage of improving fundamentals."
In currencies trading, the dollar was lower against the euro and the Japanese yen. The dollar index (DXY 77.51, -0.36, -0.46%) was last down 0.4% at 77.514.
Industrial activity in China, as measured by output, climbed for the ninth straight month in December, according to the HSBC purchasing managers' index, with overall conditions during the December-ended quarter the most robust in the survey's six-year history. See story on Chinese manufacturing data.
"A strong Chinese economy would suggest increased consumer purchases of gold in the country, as well as possible future purchases by China's central bank," said Martin Hennecke, an associate director at Tyche Group Ltd.
"There is also renewed fear of inflation in China and globally," he said. "Gold is widely bought as a hedge against inflation and becomes more attractive when inflation risks are on the rise."
Holdings in the SPDR Gold Trust (GLD 109.95, +2.64, +2.46%) , the biggest gold exchange-traded fund, stood at 1,133.62 metric tons at the end of last year, up 45% in 2009.
In other metals Monday, March palladium rallied 3.6% to $423.50, the highest level since July 2008. April platinum gained 2.5% to $1,508 an ounce, and March silver added 2.5% to $17.275 an ounce.
