Gold settled at $1,336 on Monday, surging nearly 3 percent as a technical breakout above $1,300 an ounce triggered a rush by funds and speculators to buy back their bearish bets.
The metal is on track to post its biggest three-day rally in over a year, partly boosted by heavy short-covering as futures investors rolled over to December from August deliveries ahead of first-notice day next week. Silver also surged around 6 percent.
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"With more shorts being built over the last couple of months, it's not surprising to see that the shorts have to cover their positions with the increase of prices," said Carols Sanchez, director of commodities and asset management at CPM Group.
However, the removal of short-term catalysts such as short-covering and contract rollover and possible renewed bearish bets by funds suggest bullion prices could come under pressure, analysts said. Further tightening of gold import rules by India's central bank could also weigh heavily on physical demand by the world's largest gold consumer.