Gold settled more than 2 percent higher on Wednesday, logging its biggest one-day gain in nearly seven weeks, as technical buying and heavy short-covering boosted its appeal.
Traders said the reason behind the precious metal's sudden rally without any specific news was not immediately clear, a combination of a lower dollar, U.S. crude oil gains and weaker U.S. equities helped lift bullion prices.
Funds were buying back their new bearish bets en masse after the price of gold rebounded sharply from a five-month low near $1,210 an ounce earlier in the session, analysts said.
Spot gold last rose 1.8 percent to $1,245 an ounce, having traded as high as $1,250.30. Earlier in the session, gold fell to $1,211.44 an ounce, a five-month low.
The metal has hit a fresh five-month low in every session this week.
U.S. gold futures settled 2.2 percent higher at $1,247.20 an ounce, its biggest one-day gain since Oct 17.
"Gold was able to hold support at the $1,210-15 an ounce level, and that prompted people to cover their shorts and evaluate what the (U.S. Federal Reserve) will do in the December policy meeting,'' said Thomas Capalbo, a precious metals trader at brokerage Newedge.
The yellow metal has been under pressure as markets believe a recovering economy could prompt the Fed to slow the pace of its $85 billion in monthly bond purchases as soon as December.
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