Gold prices settled higher on Monday, due to a weaker dollar and mirroring strong equity markets on prospects of further central bank monetary easing in the United States and Europe, but physical buying slowed as China and Japan were on holiday.
Weak U.S. growth data has raised expectations the Federal Reserve will keep its bond buying at $85 billion a month, while the European Central Bank (ECB) is widely expected to announce an interest rate cut when it meets on Thursday.
Accommodative policy is supportive for gold, as printing of money tends to be inflationary.
Spot gold last rose 0.6 percent to trade at $1,471 per ounce after touching a session high of $1,477.70 an ounce. It rose on Friday to touch its highest since April 15 at $1,484.81.
U.S. gold futures settled $13.80 higher at $1,467.40 an ounce.
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Both cash gold and futures sank to around $1,321 on April 16, their lowest in more than two years, after a drop below $1,500 sparked a sell-off that prompted investors to slash bullish positions.
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"Even as we think that gold was in a bubble and prices could eventually come down, in the very near term with the FOMC (U.S. Federal Open Market Committee) and ECB meetings, the gold market could come back on expectations there will be no early exit from quantitative easing from the Fed and interest rates will stay low in Europe," Danske Bank analyst Christin Tuxen said.
European shares rose while the dollar dropped against major currencies as investors counted on easy money in the euro zone and United States to offset the risk of further disappointment from global economic data.
A recent string of unsatisfactory data will strengthen the hand of the doves at the Federal Reserve and should temper any talk of reducing the bond buying programme. The Federal Open Market Committee will announce its decision at 1815 GMT on Wednesday.
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Gold rallied to an 11-month high in October last year after the Fed announced its third round of aggressive economic stimulus.
China's Absence Weighs on Physical Offtake
The absence of China. The world's second-largest gold consumer, which is on holiday until Thursday for May Day celebrations, would remove significant physical support from the market, traders said.
"We may see some consolidation this week with the absence of China, who were responsible for the strong moves higher during the Asian sessions last week," MKS Capital senior trader Alex Thorndike said.
Japan was also on holiday on Monday, while strong gold prices in rupee terms discouraged importers seeking to stock up for weddings and festivals in India, the world's largest market.
Premiums for gold bars jumped to multi-year highs in Asia last week because of strong demand from the physical market, which has led to a shortage of gold bars, coins, nuggets and other products.
Meanwhile, investors have yet to regain confidence in gold.
Holdings on the largest gold-backed exchange-traded fund (ETF), the New York's SPDR Gold Trust reported an outflow of 7.2 tonnes on Friday, bringing the total drop to 138.2 tonnes this month.
According to Reuters data, total outflows across the major ETFs have reached 11.402 million ounces this year (354.6 tonnes), more than reversing last year's net rise of 7.079 million ounces (220.2 tonnes).
Hedge funds and money managers trimmed their net longs in gold futures and options in the week to April 23 as investors reduced bullish bets, a report by the Commodity Futures Trading Commission showed on Friday.
Silver last rose 1.2 percent to $24 an ounce, having risen to a 10-day high of $24.82 on Friday.