Gold settled higher on Monday as the U.S. fiscal impasse remained unresolved.
Senate negotiations to resolve the U.S. fiscal crisis made progress on Sunday and, while there are no guarantees of an end to the government shutdown, many in the market believe a deal to raise the borrowing ceiling will emerge.
Congress has until Thursday to raise the debt ceiling, or risk defaulting.
"There has been some short-covering today ... but overall, the market is expecting a U.S. debt ceiling agreement eventually and it is mostly positioning a little bit more on the short side rather than the long,'' MKS SA head of trading Afshin Nabavi said.
"If there is a deal however we may not have a big move down, as this seems to have very much been discounted.''
Spot gold rose 1.2 percent to a session high of $1,288.88 an ounce earlier and was last trading up 0.4 percent to $1,278 an ounce. U.S. gold futures for December delivery settled $8.40 higher at $1,276.60 an ounce.