Dollar Pullback Props Up Gold

Updated from 11:41 a.m. EST

A weaker dollar gave gold a boost Wednesday as news that a foreign government is diversifiying its holdings hit the greenback.

February-dated bullion contracts closed up $3.40 at $630.30 an ounce on the Comex division of the Nymex. The exchange-traded funds that hold the metal were also rising, with the streetTRACKS Gold Shares(GLD Quote) and the iShares COMEX Gold Trust(IAU Quote) both ahead by about half a percent.

Reports that the United Arab Emirates would diversify its foreign currency reserves by purchasing more euros provided the currency-moving catalyst. Traders viewed the move as symptomatic of a wider trend and quickly bid up the euro.

"By itself, the UAE's shift is small change in the foreign-exchange market," Tony Crescenzi, chief bond market strategist at Miller Tabak and a RealMoney.com contributor, wrote in a published article. But "the UAE's shift is another in a string of actions taken by the world's central banks" to diversify away from the dollar.

The euro was trading at $1.3127, up from $1.3096 late Tuesday. The dollar was trading at 118.705 yen, down from 119.15 previously. Prices for gold and the dollar tend to move in opposite directions.

Data showing a better-than-expected housing market did little to stop the dollar weakness.

The Commerce Department says new home sales totaled 1.047 million in November, beating the consensus forecast of 1.015 million. Revised sales for October were 1.013 million. The strength of the housing market is viewed by many economists as critical to the health of the U.S. economy.