Gold hits 6-week high on China growth worry, commodities gain

By Frank Tang and Clara Denina

NEW YORK/LONDON (Reuters) - Gold rose to a six-week high at above $1,250 an ounce on Tuesday, lifted by broad-based commodities gains and concerns over an economic slowdown in China.

A sharp outflow in gold-backed exchange-traded funds and lackluster Asian physical demand, however, indicate a vulnerable price outlook for bullion, analysts said.

The yellow metal rose in the face of a stronger dollar and Wall Street rally after data showed U.S. home resales raced to a one-year high in September.

China grew at its slowest pace since the global financial crisis in the September quarter and risks missing its official target for the first time in 15 years, adding to concerns the world's second-largest economy is becoming a drag on global growth.

However, overall sentiment towards gold remained wary. Holdings in the SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, fell 1.18 percent to 751.97 tonnes on Monday - the biggest daily percentage drop in a year.

"Given the numerous risks on the market, we are surprised that there is still any substantial retreat at all from gold ETFs," said Eugen Weinberg, head of commodity research at Commerzbank.

Spot gold hit its highest since Sept. 10 at $1,255.20. It was up 0.3 percent at $1,249.86 by 2:40 p.m. EDT (1840 GMT).

Gold has now broken its 50-day moving average at $1,248 for the first time since Aug. 15.

U.S. COMEX gold futures for December delivery settled up $7 an ounce at $1,251.70, with trading volume in line with their 30-day average, preliminary Reuters data shows.

Widespread gains in commodities led by copper and crude oil also underpinned gold and platinum group metals.

The dollar rose 0.6 percent against the euro after Reuters reported the European Central Bank was looking at buying corporate bonds as soon as December in its efforts to revive the stagnating euro zone economy.

The dollar has lost ground in recent weeks as concerns about slowing global growth prompted investors to trim bets that the U.S. Federal Reserve will raise interest rates soon after an expected end to its monetary stimulus this month.

Analysts, however, said gold's performance was relatively lagging at a time when demand from Asia, the top-consuming region, is traditionally the strongest.

India, the second-biggest gold buyer, celebrates the Hindu festivals and major gold-buying events of Dhanteras on Tuesday and Diwali on Wednesday.

Weinberg said that a sustained gold price recovery must be supported by an increase in Asian gold demand.

Among other precious metals, silver was up 0.6 percent at $17.48 an ounce. Platinum gained 1.2 percent to $1,273.70 an ounce, while palladium rose 1.4 percent to $770.60 an ounce.

(Additional reporting by Jan Harvey in London and A. Ananthalakshmi in Singapore; Editing by David Evans, David Goodman and Marguerita Choy)