Gold climbed as higher energy prices damped concern that inflation will remain low and revived demand for the precious metal as a store of value.

Crude futures in New York advanced for the second time in three days. The correlation between gold and oil rose close to 0.4 today, the strongest link since July 2013. A reading of 1 means the prices move in lockstep.

A whipsaw in oil is spurring the biggest price swings for gold in almost nine months. Commodity traders often track energy prices and their impact on consumer costs. In November, the metal slumped to a four-year low as the dollar rallied and demand ebbed for an inflation hedge after crude tumbled.

Gold futures for February delivery rose 0.8 percent to settle at $1,208.70 an ounce at 1:47 p.m. on the Comex in New York. The 60-day volatility climbed to the highest since March.

Oil has collapsed into a bear market as U.S. output climbed to the highest in more than three decades amid signs of sagging growth in world demand. Through yesterday, Brent crude tumbled 36 percent this year, the biggest drop among 22 raw materials in the Bloomberg Commodity Index. Federal Reserve officials have said that lower energy prices may hold down consumer costs in the near term.

Source : Bloomberg