Gold was firm on Monday with a possible U.S. government shutdown proving supportive, leaving the market to head for its best quarterly performance in a year, but the overall outlook was weak due to inevitable tapering of U.S. monetary stimulus.
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Bullion has gained more than 8.3 percent since July, but analysts noted that performance came from a very low base after a spectacular crash witnessed in the previous quarter when prices saw their biggest two-day drop in 30 years.
Spot gold was slightly firmer at $1,335.99 an ounce by 1048 GMT, after a 1 percent gain on Friday.
"I wouldn't say it was a strong quarter because the base was quite low after a record plunge in the second quarter," Commerzbank analyst Carsten Fritsch said.
Investors were alert to the possibility of a U.S. government shutdown after the Republican-controlled House of Representatives 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.
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"It is definitely a short-term phenomenon. The sentiment towards gold is still expected to be bearish for the full year," said Barnabas Gan, analyst at OCBC Bank in Singapore.
Gold could also get some support in the near term from the uncertainties around the mid-October deadline to raise the U.S. debt ceiling.
Despite its quarterly gains, gold is down 20 percent for the year and any recovery would be based on the fate of U.S. monetary stimulus.
Gan expects prices to fall to $1,250 by the year-end if the Federal Reserve's monthly bond buying is reduced in October.
At its September meeting, the Fed stuck with its bond-buying programme, 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.
European traders and analysts were gathering in Rome on Monday for the London Bullion Market Association's (LBMA) annual conference.
The LBMA could charge its member banks more or even disband its Gold Forward Offered Rates (GOFO) after a string of new regulations in the financial market, the chairman of the industry body told Reuters on Sunday.
In other metals, silver was steady, while platinum rose 0.6 percent and palladium dropped 2.7 percent.