Gold prices rose on Monday as stock markets were lifted towards two-year highs by moves to break a budget impasse in the United States, and as the euro steadied ahead of the first euro zone finance ministers' meeting of the year.
Expectations that the Bank of Japan will deliver bold monetary easing also provided support, but the absence of U.S. players, away for the Martin Luther King public holiday, was likely to keep the market subdued, analysts said.
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Spot gold was up 0.3 percent to $1,687.69 an ounce at 1109 GMT, after gaining 1.3 percent last week, its biggest one-week rise since late November. U.S. gold futures for December delivery were up 90 cents an ounce to $1,687.90.
"For today, prices will just linger around current levels as activity is really subdued with the U.S. markets shut, and we expect trading volumes and liquidity to be quite light," UBS analyst Joni Teves said.
"Certainly we can expect better liquidity with the U.S. back tomorrow and price action will have more information from the BoJ tomorrow as well."
Gold players were closely watching European equity movements as euro area finance ministers met in Brussels, with progress talks on debt-stricken countries such as Spain, Ireland, Portugal and Greece on the agenda.
Signs of progress in U.S. debt ceiling talks helped underpin gold as they lifted stocks, which gold has tended to track in the last year.
The U.S. Federal Reserve's policy meeting next week will provide clues on the central bank's attitude towards its monetary stimulus. Any indication of withdrawal of such policy would deal a blow to bullion.
The Japanese central bank's policy meeting ending on Tuesday was also monitored. The BoJ is expected to consider making an open-ended commitment to buy assets until a 2-percent inflation target is reached.
That drove the yen to a 2-1/2-year low and pushed Tokyo's benchmark gold to match a record of 4,911 yen a gram.
Monetary stimulus from central banks helped gold extend its bull run into a twelfth year in 2012, with investors fleeing to hard assets on worries that rampant cash printing would prompt currency debasement.
"Generally easing policies are positive for gold as it is part of the whole accomodative envirnomnet from global central banks," Teves said.
INTEREST PICKS UP
Trading interest in precious metals picked up in the week to Jan. 15, with open interest and net long positions rising across precious metals, according to data from the U.S. Commodity Futures Trading Commission.
Speculators raised their net long positions in U.S. gold futures and options by 8 percent in the week ended Jan. 15, the CFTC said.
Silver net long positions gained 6.8 percent to 22,300 contracts. Spot silver was up 0.1 percent at $31.86, having hit a one-month high of $32.11 last week.
On the physical side, buying interest in Asia was also supporting gold prices.
The upcoming Lunar New Year festivities in Asia, particularly China, which is vying with India to become the world's top gold consumer, have lifted physical gold demand since the start of the year.
That is likely continue for the next couple of weeks or so, with the Lunar New Year falling on Feb. 10.
Platinum and palladium's upward momentum stalled as the new week got underway as investors looked to cash in recent gains, made on supply disruptions in South Africa and a more optimistic outlook for the world's economy.
Spot platinum retreated to $1,664.24 an ounce, down 0.2 percent, after hitting a three-month high of $1,701.50 on Thursday. It has lost a premium over gold that it had regained last week for the first time since March.
Spot palladium, which rose to a 16-month low of $730.47 in the previous session, eased 0.4 percent to $714.90.
"For prices to extend their gains, other than an escalation of supply disruptions, demand would need to firm, albeit given the mine closures, a more modest recovery in demand would now be required," Barclays analyst Suki Cooper said in a note. (Editing by Jan Harvey and Keiron Henderson)