Gold recovered on Monday from its biggest weekly drop since November after downbeat US payrolls data on Friday dampened speculation of a near-term interest rate hike and as Chinese buyers returned after the Golden Week holiday. The metal slid 4.5 percent last week, touching a four-month low of $1,241.20 an ounce on Friday, after a break of support at $1,300 unleashed a wave of technically-driven selling.
Spot gold was up 0.3 percent at $1,259.76 an ounce at 1400 GMT, while US gold futures for December delivery were up $10.20 an ounce at $1,262.10. "Traders love to bag a bargain, even if it is a short term trade," said Naeem Aslam, chief market analyst at ThinkMarkets. "The support at $1,233 is under a major focus and it could be retested if the upcoming US retail sales data due this week prints a strong number, as this will fuel further speculation that the Fed will increase the interest rate this year."
Gold is highly sensitive to rising US interest rates, as these increase the opportunity cost of holding non-yielding bullion, while boosting the dollar, in which it is priced. Hedge funds and money managers cut their net long positions in COMEX gold contracts to four-month lows in the week to October 4, as prices tumbled, US government data showed.
However, the world's largest gold-backed exchange-traded fund, New York-listed SPDR Gold Shares, reported the biggest one-day rise in its holdings since early July on Friday, of 11.3 tonnes. Gold also took some support from the return of Chinese traders after the Golden Week holiday last week. China is the world's biggest consumer of physical gold.
"The market was crucially lacking that element of physical support (last week) that we would normally expect to at least keep a floor under prices," Mitsubishi analyst Jonathan Butler said.
Gains in gold were capped however by a perception that Democrat Hillary Clinton had won out over Republican Donald Trump in the second US presidential debate overnight. A Trump victory would have been seen as beneficial for gold, analysts said, as it would increase uncertainty. Among other precious metals, silver was up 1 percent at $17.68 an ounce. It fell 8.5 percent last week, its biggest weekly drop in more than three years. Platinum was 0.1 percent higher at $965.20 an ounce, having touched $946.40 on Friday, its lowest since April 7. Palladium snapped a five session fall, and was 0.3 percent lower at $663.30 an ounce.
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