Gold edged higher on Monday as a possible US government shutdown prompted safe-haven buying, and the metal was on track to record its best quarter in a year despite a cloudy outlook for US stimulus.
Gold has gained nearly 9% in July-September, boosted by a big short-covering rally, geopolitical tensions in the Middle East and some weak US economic data.
The gains bring to an end gold's longest quarterly losing streak since 2001 - the metal fell more than 30% in the three quarters to June on fears of an early end to the US Federal Reserve's bond-buying programme.
"Gold has behaved like a safe-haven currency of late. The market is pricing in a possible government shutdown," said Barnabas Gan, an analyst at OCBC Bank in Singapore.
The likelihood of a US government shutdown increased after the Republican-controlled House of Representatives early on Sunday passed a measure that ties government funding to a one-year delay of President Barack Obama's landmark healthcare restructuring law.
If a stop-gap spending bill for the new fiscal year is not passed before midnight on Monday, government agencies and programs deemed non-essential will begin closing their doors for the first time in 17 years.
"It is definitely a short-term phenomenon. The sentiment towards gold is still expected to be bearish for the full year," said Gan.
Spot gold rose 0.2 % to $1,337.84 an ounce by 0637 GMT, adding to a 1% gain on Friday.
Gold could also get some support in the near term from the uncertainties around the mid-October deadline to raise the US debt ceiling.
Despite the September quarter's gains, gold is down 20% for the year and any recovery hinges on the fate of the Fed stimulus.
OCBC Bank analyst Gan expects prices to fall to $1,250 by the year-end if a stimulus tapering is announced in October and prices to climb to $1,400 if there is no cut.
In its September meeting, the Fed stuck with its bond-buying stimulus, surprising markets which had expected a small reduction from this month.
The Fed meets next on Oct. 29-30.
"It seems to us that the central bank will likely stand pat again, perhaps not wanting to take two completely different directional views on rate policy in the span of just 30 days,"
INTL FCStone analyst Edward Meir said in a note.
Precious metals prices 0637 GMT
Metal Last Change Pct chg YTD pct chg Volume
Spot Gold 1337.84 2.13 +0.16 -20.11
Spot Silver 21.70 -0.03 -0.14 -28.34
Spot Platinum 1414.80 1.70 +0.12 -7.83
Spot Palladium 728.75 0.75 +0.10 5.31
COMEX GOLD DEC3 1338.80 -0.40 -0.03 -20.11 16979
COMEX SILVER DEC3 21.76 -0.08 -0.35 -28.22 4711
COMEX gold and silver contracts show the most active months