New York, London — Gold futures rose above $970 (U.S.) an ounce Tuesday, scaling a two-month high on the back of dollar weakness and growing investor risk appetite, but the metal could retreat as it nears the $1,000 level.

Platinum group metals also rose sharply, boosted by better-than-expected auto sales as Americans rushed to take advantage of the government's stimulus plan to scrap their old cars and buy new ones.

“It is a combination of dollar weakness and a rise in investment risk appetite, which is shifting capital out of the bond market and into equities. Basically, it is undermining the dollar and allowing gold to rally,” said James Steel, chief commodities analyst at HSBC in New York.

“In general, hedge funds are bullish,” he said.

Renewed interest from investment funds buoyed commodities and equities alike, as the market focused on economic recovery rather than deflation, which had decreased inflation-hedge buying in gold earlier this year.

U.S. December gold futures settled up $10.90, or 1.1 per cent, at $969.70 an ounce on the Comex division of the New York Mercantile Exchange.

Spot gold at $964.10 an ounce at 2:28 p.m. ET, against $955.55 an ounce late in New York on Monday.

Gold prices came under pressure in earlier trade as the U.S. dollar edged up against the euro, with falling equities prompting profit taking in currencies seen as riskier. .

But the currency pared those gains later in the session after data showed sales of previously owned U.S. homes rose at a faster-than-expected rate in June.

Dollar weakness tends to boost investor appetite for hard assets such as gold, as well as making the precious metal cheaper for holders of other currencies.

However, given weak underlying demand for gold and strong technical pressure, prices were likely to experience heavy pressure near the $1,000 level, analysts said.

“The trend that we've seen from the highs established this year is going to create some pretty serious resistance around the $980 area,” Saxo Bank senior manager Ole Hansen said.

Gold prices had risen toward $1,000 several times in the past 18 months, and each time met heavy selling near the psychologically important level.

Inflows into gold-backed exchange-traded funds were weak last month, with holdings of the largest, New York's SPDR Gold Trust, easing 4 per cent.