Gold rose about 1.5 percent in heavy trading on Monday, on track for its biggest one-day gain in a month as renewed hopes for further U.S. monetary easing fueled bullion buying as a hedge against long-term inflation and economic uncertainty.

Bullion followed gains in equities and commodities after Federal Reserve Chairman Ben Bernanke said the U.S. economy needs to grow more quickly to bring down the unemployment rate.

"It's not the headline inflation that's going to bump up, (but it's) still a long-term expectation. Gold has been behaving as the world seems to be monetizing debt," said Jeffrey Sherman, commodities portfolio manager of DoubleLine Capital, a Los Angeles-based investment manager with $30 billion in assets.

Spot gold was up 1.5 percent at $1,686.91 by 12:26 p.m. EDT (1626 GMT), having earlier hit a two-week high of $1,687.90.

U.S. gold futures for April delivery were up $23.80 an ounce at $1,686.20, with trading volume already 20 percent higher than its 30-day average, preliminary Reuters data showed.

Silver also rose 1.9 percent to $32.80 an ounce.

Gold extended Friday's 1-percent rise, and is on track for its biggest two-day gain since late January when the Federal Reserve said for the first time it expects to keep interest rates near zero until at least late 2014.

A 1-percent rally on Wall Street, a dollar decline after Bernanke's comment and higher investor risk appetite also underpinned gold on Monday.

The metal briefly rose above an important technical support at its 200-day moving average, and traders said it would be key for gold to hold above that level in the next several sessions.

OUTLOOK CAUTIOUS

Despite Monday's rise, some investors seemed to have lost interest in the gold trade.

Data from the U.S. Commodity Futures Trading Commission on Friday showed money managers in gold futures and options cut their bullish bets for a third straight week to the weakest level in two months.

Bullion had sold off as much as $160 over the last four weeks after a strong run of U.S. economic data and fading hopes of Fed easing prompted some fund managers to exit the gold trade.

While concerns over the euro zone debt crisis were a key factor driving gold to record highs last year, the metal has since re-established its usual inverse relationship with the dollar as the greenback takes precedence as investors' haven of choice.

"If the dollar is going to strengthen over the next couple of days, gold should see more downward pressure," said Standard Bank analyst Walter de Wet.

Spot platinum was up 1.4 percent at $1,632.49 an ounce, while spot palladium was up 1.8 percent at $665.47 an ounce.