Gold rose towards $US1400 an ounce on Monday after a 2 per cent decline last week, with investors buying bullion as the US dollar weakened, China kept interest rates steady and a US tax cut extension loomed.
The US dollar fell, partly on concern a tax cut extension could swell the US budget deficit. This gave gold a boost, as did signs that inflation is heating up in China, which has so far refrained from raising interest rates.
"Gold is getting a lift from the lack of action by the Chinese central government, and you add in prospect of some type of tax deal getting done, you've got a good underpinning for gold, said Frank McGhee, head precious metals trader of Integrated Brokerage Services LLC in Chicago.
Chinese inflation soared past forecasts to a 28-month high in November and showed signs of spreading beyond food prices. The country has boosted bank reserves, which investors see as less aggressive than an interest rate hike.
Spot gold rose 0.8 per cent to $US1394.81 an ounce in US trade. US gold futures for December delivery rose $US11.20 an ounce to $US1396.10.
Silver resumed its rally and sharply outperformed gold. It climbed 3.4 per cent to $US29.52 an ounce.
COMEX gold and silver futures volume so far were both more than 50 perc ent below their 30-day averages, preliminary Reuters data showed, as some trading desks and funds already have closed their books ahead of the year end.
Gold hit a record high at $US1430.95 an ounce last Tuesday but quickly surrendered gains to end the week down 2.2 per cent.
Speculative buyers have increased net longs, or bullish positions, by 2.3 per cent in the week up to December 7, while silver's net longs dipped 3.2 per cent, CFTC's weekly Commitments of Traders report showed.
Sharper risk appetite after upbeat Chinese economic data lifted equity markets and industrial commodities like copper, which touched a record high, and crude oil.
Investors also had an eye on Federal Reserve policy makers who meet on Tuesday. The Fed's bond buying program has boosted gold in recent months as investors worry that loose monetary policy could eventually result in inflation.
Reuters