Oil prices surged more than 5 percent after U.S. oil production data showed output falling and OPEC said it would talk with other producers about low prices.
"It was oil that sparked the short-covering (in gold)," said George Gero, precious metals strategist for RBC Capital Markets in New York.
"That meant that the funds that had shorts in crude probably also had shorts in gold, as they normally do."
Support from rallying oil prices came after spot gold fell 0.7 percent as investors focused on the Fed, which left open the possibility of a September rate rise at a central banking conference at Jackson Hole, Wyoming, on the weekend. Several officials, however, indicated that prolonged financial market turmoil might delay such a move.
Fed Vice Chairman Stanley Fischer said on Saturday that U.S. inflation was likely to rebound as pressure from the dollar fades, allowing for a gradual rise in rates.
Read MoreMetals and miners are in for more pain: Traders
"Last week it was felt that maybe the Fed would postpone the interest rate hike to December, but now, after the latest comments, you can say that it's still possible that it will be in September," LBBW analyst Thorsten Proettel said. "Of course, that is a burden for the gold price."
World stock indexes edged lower amid persistent investor concerns about slowing growth in China and the prospect of higher U.S. interest rates.
The market is particularly awaiting Friday's U.S. non-farm payrolls report for August, a key economic indicator.
Hedge funds and money managers more than doubled bullish bets in COMEX gold in the week ended Aug. 25.