Gold gains as China's post-holiday return spurs buying

Gold rose for the second straight session on Monday, after falling in the preceding eight, buoyed by post-holiday buying in China, while a slowdown in US job growth bolstered expectations that US interest rate hikes would only be gradual.

Spot gold was up 0.5 per cent at $1,262.43 an ounce by 0736 GMT. US gold futures rose one per cent to $1,264.30 an ounce.

"Gold prices are quite appealing after the recent correction. In China, what we see today is that there is some demand to buy gold following its dip," said Richard Xu, a fund manager at HuaAn Gold, China's top gold exchange-traded fund (ETF).

Bullion touched a four month low of $1,241.20 on Friday. Spot gold ended about 4.5 per cent lower last week, its biggest weekly decline since November 2015.

"Early buying was evident from both speculators and physical traders, with investors expecting the return of the Chinese - after a week-long break - to see some decent buying," said Alex Thorndike, senior precious metals dealer at MKS PAMP Group.

US employment growth eased for the third straight month in September and the jobless rate rose, the Labor Department said in a report on Friday.

The possibility of a near term rate hike weighed on gold much of last week but the US jobs data brought some relief and prompted an almost immediate rally, HSBC analyst James Steel said in a note.

Gold is highly sensitive to rising US interest rates, which increase the opportunity cost of holding non-yielding bullion.

Spot gold may break a resistance at $1,266 per ounce and edge up to the next resistance at $1,276 before resuming its downtrend, according to Reuters technical analyst Wang Tao.

The safe haven asset was fairly subdued in its reaction to the second US presidential debate between Democrat Hillary Clinton and Republican Donald Trump, analysts said.

"Talks related to the presidential election don't count. Once elected most candidates follow the same practices. They don't opt for extreme measures like they promise in their campaigns," said Mark To, head of research at Hong Kong's Wing Fung Financial Group.

Financial markets saw less chance of a victory by Trump in his US presidential bid amid a scandal over vulgar comments he made about women.

Holdings of the SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, rose 1.19 per cent to 958.90 tonnes on Friday.

Hedge funds and money managers reduced their net long positions in COMEX gold contracts to four-month lows in the week to October 4.

Among other precious metals, silver was up 0.6 per cent at $17.61.

Platinum edged 0.5 per cent higher to $969.75 an ounce, after touching a six-month low of $946.40 on Friday.

Palladium gained about one per cent at $671.23, snapping five straight sessions of losses.