NEW YORK/LONDON: Gold jumped 2 percent on Monday as trading for the third quarter opened, but traders were doubtful about near-term strength over continuous worries about a pullback of US stimulus measures that caused bullion's record drop in the previous quarter.
The dollar fell against most currencies as better-than-expected manufacturing data from Europe and Japan provided relief to gold and other risky assets that have recently sold off with the prospect of reduced stimulus measures from the Federal Reserve.
Investor confidence in gold - which fell a record 23 percent in the second quarter - has been eroded by rising talk of an end to the Fed's ultra-loose monetary policy, which would support a rise in interest rates, making the shiny metal less attractive.
Spot gold hovered at around $1,234 an ounce by 11:50 EDT (1550 GMT).
It had surged 2.2 percent earlier to a session peak of $1,260.61, well above the near three-year low of $1,180.71 on Friday on speculation the Fed will rein in its $85 billion monthly bond purchase programme.
Comex gold futures for August delivery were up 2.6 percent at $1,254.70.
Andrey Kryuchenkov, an analyst at VTB Capital, said the bounce was an expected reaction to the retreat last week.
"I don't think it's sustainable while volumes remain relatively low," Kryuchenkov said.
Traders and investors are awaiting US payrolls report for June, due on Friday, for a better indication of how gold and other assets would perform.
A strong payrolls reading would likely signal more pressure on the Fed to reduce its stimulus, lifting Treasury yields and the dollar, and depressing gold.
Markets are also watching the European Central Bank's policy meeting on Thursday, which is likely to emphasise that the euro zone economy is in a different stage of recovery than the United States.
"I doubt there will be a lot of bargain hunting given a whole array of macro numbers this week, including the ECB statement (and with) non-farms in focus," VTB Capital's Kryuchenkov said. "The market is putting extra weight on US economic releases."
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