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Gold gains on physical buying as dollar drops

Gold rose 1.4 percent on Monday, its biggest one-day gain in two months, as the dollar's sharp retreat sparked fresh physical demand and short covering after bullion earlier hit a 15-month low, traders said.

Other precious metals rebounded broadly as the dollar's rally took a breather on profit-taking that emerged after Friday's jobs report reinforced the view the Federal Reserve would raise U.S. interest rates in mid-2015. The U.S. dollar index fell 0.8 percent.

Earlier on Monday, the yellow metal fell to its weakest since late June 2013, within reach of a four-year low at $1,180 an ounce. On Friday, gold entered into a correction phase, defined as a 10 percent drop from its most recent high at $1,345 reached in July.

"Gold's drop below $1,200 an ounce is sparking some more physical buying, especially from (Asia)," said Edmund Moy, chief strategist for California-based Fortress Gold, a provider of bullion-backed retirement accounts.

Spot gold rose 1.4 percent to $1,207 an ounce, having earlier hit a 15-month low at $1,183.46. U.S. gold futures settled up $14.40 at $1,207.30 an ounce in heavy trading volume.

Gold
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On Friday, the dollar index soared over 1 percent after the Labor Department said U.S. hiring accelerated in September and the unemployment rate fell to a six-year low.

Analysts noted, however, the report bore a large caveat in the form of persistently stagnant wages. Average hourly earnings actually slipped a penny last month.

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"The spate of economic news has put downward pressure on gold, but the payrolls report might have painted a much better picture for the job market what it really is," Moy said.

The absence of top gold consumer China is weighing on the physical market, which usually sees a pick up in demand from jewelers and retail investors when prices fall.

China's financial markets, shut for a national holiday, will reopen on Wednesday. Markets in Singapore, a key bullion trading center in southeast Asia, were also closed for a public holiday.