Gold settles higher on global growth concerns

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Gold snapped two days of losses to rise on Monday as renewed weakness in European stocks boosted interest in the metal as an alternative asset, though a tentative recovery in risk appetite in other markets limited its gains.

The metal rebounded sharply after falling to its lowest in over a year earlier this month, as jitters over growth prompted stock markets to sell off aggressively.

A bounce in equities after upbeat housing and consumer sentiment data on Friday helped take the shine off that recovery, but gold's subsequent move lower proved temporary.

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U.S. gold futures for April delivery settled $5.70 higher at $1,246.00 an ounce, meanwhile spot gold was last up 0.7 percent at $1,246 an ounce.

"Gold sentiment I would say has moved from negative to neutral, but as long the market continues to expect renewed dollar strength, then the upside seems limited," Saxo Bank's head of commodity research Ole Hansen said.

"I, like most others, am keeping an eye on whether the $1,250/55 (level) can be broken," he said. "If that happens then we should see some additional liquidation of short positions."

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European stocks fell 1 percent on Monday, trimming lofty gains made in the previous session, with a profit warning from German business software maker SAP hitting shares in the tech sector. Wall Street also opened lower.

Sentiment in the broader financial markets showed some tentative signs of recovery, however.

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Euro zone bond yields dipped as concerns about a slowdown in global growth eased. German 10-year Bund yields, which set the standard for euro zone borrowing costs, fell 1 basis point to 0.85 percent, while Spanish, Italian and most other yields were down 1-2 basis points on the day.

Hedge funds and money managers increased their bullish futures and option bets in gold in the week up to Oct. 14 after eight consecutive weekly declines, the Commodity Futures Trading Commission said on Friday.

The world's largest bullion-backed exchange traded fund, SPDR Gold Trust, has also seen an uptick in investments. Its holdings rose 1.5 tonnes last week, its first weekly inflow since early September.

Demand from the leading centres of physical gold buying in Asia has been strong, but may be set to abate, MKS said in a note on Monday.

"Physical demand has been a primary driver of the $70 move off the $1,182 lows a few weeks back," it said. "However, now that we are closing in on Diwali this week, Indian physical demand should moderate."

"Chinese physical demand has been steady but tepid, with outright demand on the modest side at these higher levels though metal is still being snapped up for loans," it added. "Shanghai Gold Exchange premiums have backed off as a result, with the kilobar contract slipping into discount on occasion last week."