Gold around two-week high as shares drop on Japan recession

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Gold held near a two-week high on Monday as global shares fell after data showed Japan had slipped into recession, raising concerns about global growth, but strength in the dollar kept the metal's gains in check.

Spot gold was down 0.1 percent at $1,188.00 an ounce by 1049 GMT after peaking at $1,193.95, the highest since Oct. 31. The metal jumped 2.3 percent on Friday, moving above the key technical level of $1,180.

The metal had fallen to a 4-1/2-year low of $1,131.85 an ounce last week, due to multi-year highs in the dollar.

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"Friday's bounce has eased some nerves, and some of gold's internal supply-and-demand fundamentals actually look pretty strong. But to most investors that matters little while the bearish external factors such as the stronger dollar remain such a heavy weight," Macquarie analyst Matthew Turner said.

The dollar was up 0.3 percent against a basket of currencies, mostly helped by a seven-year low in the yen after data showed Japan's economy unexpectedly sank into recession.

The way higher may not be an easy one for bullion as the factors that brought down gold in the last few weeks have not gone away.

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The dollar remains in favour with investors as U.S. data has been pointing towards economic recovery, and oil prices continue to fall. Gold is usually seen as a hedge against oil-led inflation.

Economic optimism could dent the appeal of gold by pushing investors towards riskier assets such as equities. A robust economy also could prompt the U.S. Federal Reserve soon to raise interest rates, hurting non-interest-bearing gold.

Bearish sentiment among investors prevailed. Speculators in gold futures and options slashed their long bets for a third straight week, according to the U.S. Commodity Futures Trading Commission.

Read MoreGold struggles to find buyers in third quarter

Hedge fund Paulson & Co maintained its stake in the world's biggest gold-backed exchange-traded fund, SPDR Gold Trust, in the third quarter, but investor George Soros has sharply cut his stake in Barrick Gold Corp and several gold mining company ETFs.

Among other precious metals, platinum fell 0.7 percent to $1,203.15 an ounce, while palladium rose 0.3 percent to $763.00 an ounce.