Gold climbed on Monday to its highest in more than seven weeks on buying fueled by political uncertainty after comments by U.S. President-elect Donald Trump on NATO and China.
Spot gold was up 0.5 percent at $1,203.8 an ounce by 1436 GMT from an earlier $1,207.86, it highest since Nov. 23.
U.S. gold futures were up 0.6 percent at $1,203.20.
Last week, Trump said that the "One China" policy on Taiwan was up for negotiation. China retaliated by saying it would "take off the gloves" and act strongly if Trump continues to "provoke" once he takes office.
His comments on NATO being obsolete have also made investors nervous.
"There's the tussle between China and the United States over Taiwan. Trump has been talking to Taiwan, which the Chinese don't like. His comments on NATO are seen as negative," said Julius Baer analyst Carsten Menke.
Investor interest was indicated by the largest physically backed exchange-traded fund, New York's SPDR Trust, holdings of which rose for the first time since Nov. 9, the day after Trump's election victory.
Hedge funds and money managers also raised their net long position in COMEX gold contracts for the first time in nine weeks in the week to Jan. 10, U.S. Commodity Futures Trading Commission (CFTC) data showed on Friday.
"The market is taking a reality check from Trump euphoria, equity markets are moving sideways, the dollar has steadied and bond yields are down, allowing gold to recover," Menke said.
The stronger dollar has weighed on gold in recent months, making it more expensive for holders of other currencies. Lower bond yields boost the attraction of gold as a safe-haven asset.
Much will depend on Trump and his plans for the U.S. economy after his inauguration on Friday. But analysts generally expect higher interest rates to strengthen the dollar this year, capping gold's gains.
"Markets are pricing in three to four rate hikes for 2017. This will likely be the crippling factor for gold, as real yields start to rise, particularly if inflation remains modest," Standard Chartered analysts said in a note.
They added that Chinese buying has been hindered by limitations around gold import quotas and that buying ahead of the Lunar New Year has been soft.
"India has attempted to wean the country off gold and demand has been hampered by a raft of government policies clamping down on the parallel economy," Standard Chartered said.
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