Bullion climbed after Chinese PMI manufacturing data showed the key sector grew last month for the first time in more than a year, while US manufacturing activity unexpectedly contracted in November to its lowest level in more than three years. "New contract month and new positions are helping gold. We have some bargain hunting on an improvement from China's PMI and after last Wednesday's heavy selling," said George Gero, vice president at RBC Capital Markets.
Spot gold was up 0.2 percent at $1,717.51 an ounce by 1:52 pm EST (1852 GMT). Newly created longs lifted gold prices, traders said. Last week, gold dropped sharply after Wednesday's 1.3 percent decline due to a December-February contract rollover and worries that the US fiscal crisis might lead to a recession.
US COMEX gold futures for February delivery settled up $8.40 at $1,721.10 an ounce. Trading volume was about 50 percent below its 30-day average, preliminary Reuters data showed. Markets are getting cautious over the approaching $600 billion in tax hikes and spending cuts that will automatically start in early January. A failure to reach a deal to avert the so-called fiscal cliff could trigger a recession, economists said.
Some analysts say lengthy and acrimonious talks could prompt safe-haven buying of gold. However, others warned long-drawn-out talks could hurt the precious metal if they spark broad-based selling of stocks and commodities. Silver rose 0.7 percent to $33.61 an ounce.
Gold buyers in India, one of the world's biggest bullion consumers, stocked up on the metal as prices hovered around their lowest in a month. Underscoring investors' interest in the metal, holdings of gold-backed exchange-traded funds hit a record high, and speculators raised their net length in gold for the third straight week. Spot platinum edged up 0.3 percent to $1,603.50 an ounce, and palladium rose 1.3 percent to $686 an ounce.