Rate outlook helps gold climb to highest gains in two weeks

Gold prices rose to their highest in almost three weeks on Monday, setting the market on course towards $1,300 an ounce, drawing confidence from continued ultra-low interest rates.

Weak economic data and uncertainty over U.S. monetary policy has contributed to risk aversion, boosting investor appetite for bullion and other assets perceived as safer stores of value, including the Japanese yen.

Spot gold hit $1,260.30 an ounce in early trade, its highest since March 22, before retreating slightly to $1,255.41, up 1.22 percent, the biggest one-day gain since March 29.

"Very loose monetary policy pursued by several central banks should point to even higher gold prices," Commerzbank analyst Daniel Briesemann said.

"The ECB also increased its bond-buying purchases and has not ruled out further measures."

Briesemann noted gold's progress in euro terms, approaching the 1,100 euro mark. Strong gains in the precious metal's value across different currency denominations is an indicator of broad market strength.

Scaled-back expectations for further monetary tightening this year helped gold to its best quarter in nearly 30 years in the three months to March.

Fed Chair Janet Yellen said last Thursday that the U.S. economy was on a solid course and still on track to warrant further interest rate hikes.

The U.S. central bank raised rates in December for the first time in nearly a decade.

However, New York Fed President William Dudley on Friday said the central bank must take a cautious approach to further rate increases because of lingering external risks to the U.S. economy, despite some strength at home and welcome hints of inflation.

"We expect the Fed to press ahead with a rate hike in June, but considering the original path for monetary tightening, the U.S. is looser than expected," Capital Economics commodities economist Simona Gambarini said.

The dollar was broadly supportive for bullion markets, trading down 0.25 percent against a basket of major currency rivals at 94.

Data on Friday showed that hedge funds and money managers cut their net long positions in gold futures and options in the week to April 5, but still not far from a two-month high.

Assets in SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, fell 0.22 percent to 817.81 tonnes on Friday.

In other precious metals, silver futures gained 3.65 percent to $15.94 an ounce, platinum futures rose 2 percent to $988.10 and palladium contracts were up 1.29 percent at $545.60.

— CNBC's Chris Hayes contributed to this report.