After posting its biggest one-day drop in nearly 30 years the previous session, gold gained more than 1 percent on Monday, as moves by policymakers around the world to help banks pulled down the dollar.
Prospects for an easing in the month-long financial crisis could dim investors' interest in gold as a safe haven, but should also stem the kind of frenzied liquidiation that knocked nearly $65 an ounce off the metal on Friday, the biggest one-day fall in dollar terms since 1980.
"Because we're seeing a bit of a bounce on currency markets, that's giving gold a lift," Australia & New Zealand Bank research head Mark Pervan said.
"But a rebound in the U.S. dollar that would accompany a recovery in stocks would be bad for gold and we could see prices hit again," he said.
Spot gold rose $14.50 or 1.71 percent to bid at $861.90 against a notional close of $847.40 on Friday, when prices were whipsawed in a nearly unprecedented over $100 range.
Gold hit a one-week low of $823.50 on Friday as investors sought cash to cover margin calls from steep losses in stocks, having earlier rallied to a two-month high at $931 an ounce.
"Subject to the panic attacks and unstable psychology of world financial markets, gold will continue its roller-coaster ride, exhibiting short-term price volatility," said Jeffrey Nichols, managing director of American Precious Metals Advisors.
Author: Jo Amey
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Gold Up after Biggest Drop in 30 Years
After posting its biggest one-day drop in nearly 30 years the previous session, gold gained more than 1 percent on Monday