Gold rose nearly 1 percent on Monday as the ongoing U.S. government shutdown and no signs politicians were willing to resolve a budget impasse and raise the debt-ceiling limit boosted the metal's safe-haven appeal.
The White House on Monday reiterated that President Barack Obama would not negotiate with Republicans over the threat of a debt default, as stock prices fell and the federal government shutdown neared its second week. Other safe-haven markets, such as U.S. Treasuries, were higher.
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Even though reactions to the deadlock in Washington from gold and other financial markets have so far been mild, analysts said that bullion should benefit from the uncertainty related to a possible U.S. default if Congress fails to raise the U.S. debt limit by Oct. 17.
"The longer the shutdown, the longer the issue of debt ceiling crisis, gold will likely be increasingly supported," said Carlos Sanchez, director of commodities and asset management at CPM Group.
During the last debate over the U.S. debt ceiling, in 2011, gold hit an all-time high of $1,920 an ounce. Congress reached an agreement only at the last minute.
Spot gold was up 0.8 percent at $1,321.01 an ounce by 2:55 p.m. EDT (1855 GMT), having earlier reached its highest since Oct. 1 at $1,327.94.
U.S. gold futures for December settled up $15.20 an ounce at $1,325.10.
Despite Monday's rally, preliminary Reuters data showed Comex gold futures trading volume at less than 95,000 lots, about 40 percent below its 30-day average.
Traders said that recent weak futures turnover underscored a lack of commitment among bullion investors in spite of the uncertainty.
After gold prices fell last week due to several large sell orders, the precious metal rally resumed, driven by U.S. political uncertainty, analysts said.
"There is flight-to-safety buying all the way across from bonds to currencies to metals," said Bill O'Neill, partner of commodities investment firm LOGIC Advisors.
Other financial markets largely reflected investor jitters over the U.S. debt ceiling, with the S&P 500 equities index down about 0.5 percent, while U.S. Treasury bond prices rose and the dollar index fell.
In other precious metals, silver was up 2.9 percent at $22.28, having earlier hit a two-week high at $22.44.
Platinum gained 1.2 percent to $1,396.49 an ounce after a 1.3 percent increase on Friday, as mine strikes and curbs in top platinum producer South Africa threatened to hurt supply.
Palladium rose 0.4 percent to $699.47 an ounce.
(By Frank Tang and Clara Denina; Additional reporting by A. Ananthalakshmi in; Singapore; editing by Keiron Henderson)