(Bloomberg) -- Gold rebounded from a four-month low to the highest level in almost a week as the dollar weakened and lower prices spurred demand in China, the second-largest consumer, countering outflows from exchange-traded products.

Bullion for immediate delivery rose as much as 0.6 percent to $1,258.30 an ounce, the highest level since Nov. 20, before trading at $1,254.34 by 3:56 p.m. in Singapore. Prices touched $1,225.55 yesterday, the lowest since July 8, as an accord between Iran and world powers damped demand for haven assets.

Volumes for cash gold of 99.99 percent purity on the Shanghai Gold Exchange rose to 15,077 kilograms yesterday, the most since Nov. 13. Assets in the SPDR Gold Trust, the biggest ETP backed by bullion, shrank to 848.91 metric tons yesterday, the least since January 2009, contracting for a sixth day in the longest slump since August. The Bloomberg U.S. Dollar Index, which tracks the currency against 10 major counterparts, fell 0.1 percent to 1,019.92.

“The slight pullback in the dollar may be helping gold but that said, the issue of U.S. monetary policy continues to weigh on the market,” said Mark To, head of research at Wing Fung Financial Group, a Hong Kong-based trader and refiner. “Gold may be oversold and have a technical bounce in the near-term.”

Prices that last week capped the worst weekly performance in two months pushed gold’s 14-day relative-strength index to 30 for a fourth day yesterday, a level that suggests to some analysts who study technical charts that bullion may rebound.

Fed Stimulus

Gold tumbled 25 percent this year, entering a bear market in April. Investors sold metal from ETPs at a record pace as inflation failed to accelerate and on expectations the Federal Reserve will begin scaling back its $85 billion-a-month of asset purchases that helped bullion cap a 12-year bull run in 2012.

Gold for February delivery on the Comex in New York gained as much as 1.3 percent to $1,258.20 an ounce, before trading at $1,254.60, in volume that was 12 percent above the average for the past 100 days at this time.

Spot silver fell as much as 0.6 percent to $20.1186 an ounce after a 1.9 percent advance yesterday, the most in a month. Prices touched $19.5955 yesterday, the lowest since Aug. 8. Metal in ETPs dropped to 19,794.6 tons yesterday, the least since Aug. 13, according to data tracked by Bloomberg, and has declined 1.6 percent from a record in October.

Platinum rose 0.3 percent to $1,389.25 an ounce after dropping to a six-week low of $1,374.40 yesterday. Palladium gained 0.4 percent to $724.17 an ounce, advancing for a fourth day.

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