The Philadelphia Federal Reserve Bank said its business activity index dropped to minus 5.8 from 8.5 in April, dampening economists' expectations of a gain at 10.0. Gold futures for June 2012 contract, at MCX, were trading at Rs. 28,871 per 10 grams, up by 1.21 per cent at 3.20 pm IST, after opening at Rs. 28,598.
Sentiment improved further as a result of the commencement of safe haven buying activity by the investors in the midst of rising worries over the health of Spain's banking sector.
The yellow metal's safe haven appeal was boosted after reports that Moody's may be gearing up to declare widespread downgrades on Spain's banking sector.