<div>Gold extended its new year rally to a sixth session on Tuesday, pushing the safe-haven metal to near three-week highs with support from weaker equities and robust Chinese physical demand.<br /><br />U.S. gold futures also steadied after unusually sharp movements in the previous session, when prices fell 3 percent for a brief period before recovering.<br /><br />Spot gold has gained nearly 4 percent in the past six sessions, after a 28 per cent drop last year, mainly due to weakness in stock markets and as funds reallocate positions at the start of the year.<br /><br />"We have been rather surprised by gold's resilience over the course of the last week, but suspect that it's upside staying power will be limited," INTL FCStone analyst Edward Meir said.<br /><br />Meir said prices will be hurt by the US stimulus tapering, the possibility of a stronger dollar, low inflation and outflows from exchange traded funds - factors that caused bullion to tumble in 2013 after a 12-year rally.<br /><br />Spot gold had gained 0.3 percent to $1,241.45 an ounce by 0721 GMT, not far from its three-week peak of $1,248.30.<br /><br />Asian shares fell to a near four-month low on Tuesday, though the dollar rebounded after overnight weakness on disappointing US services sector data that raised concerns about growth in the world's largest economy.<br /><br />Gold is seen as an alternative to risky investments such as equities.<br /><br />"We believe the gold price looks likely to move sideways in choppy action," HSBC analysts said in a note. "Investment demand is still sluggish but underlying physical consumption is positive."<br /><br /><strong>Physical Demand</strong><br />Investors were heartened by buying interest in the physical markets, where the outlook for demand from top buyers - China and India - looked optimistic.<br /><br />Indian officials are in talks to cut a record high import duty on gold and relax rules on exports, government sources said, after the measures helped narrow the country's trade deficit but now threaten to encourage smuggling.<br /><br />The stringent rules cut off demand from India last year, adding pressure to gold prices.<br /><br />In China, premiums for 99.99 per cent purity gold on the Shanghai Gold Exchange were steady at about $20 an ounce over London prices.<br /><br />Volumes traded on the exchange hit their highest on Monday since May.<br /><br />(Reuters)</div>
