Gold rose on Monday, supported by a weaker dollar ahead of the U.S. Federal Reserve policy meeting and a resurgence in Chinese buying after the metal hit a two-week low in the prior session.
The Fed is set for a lively debate when it meets on Sept. 20-21 and could give a clear signal of an interest rate rise to come even if it follows market expectations for a pause this month. Economists polled by Reuters are increasingly expecting a rate hike this year, but only in December.
A softer dollar, which was down 0.2 percent against a basket of currencies, underpinned gold by making the metal cheaper for holders of other currencies.
Spot gold was up 0.6 percent at $1,317.66 an ounce by 0729 GMT, having hit a low of $1,306.26 on Friday, the weakest since Sept. 1.
U.S. gold rose 0.8 percent to $1,320.90 an ounce.
The return of Chinese investors after the Mid-Autumn Festival break spurred buying, traders said.
"They (China) have been out of the market for two days and obviously liked these levels and are buying. Some stops were triggered on the upside," a Hong Kong-based trader said.
"People are quite hawkish on the Fed meeting. If there is any buying, it must be in arbitrage as Shanghai premiums were firm. When Europe wakes up it might be a different story and there could be selling in the rally."
The market is also waiting for the outcome of a Bank of Japan policy meeting, on Sept 20-21, for trading cues.
"Gold has seesawed for the last week purely because of the fact that market watchers are waiting for the Fed meeting later this week," said OCBC Bank analyst Barnabas Gan. "Do expect gold prices to be extremely volatile towards the meeting."
Spot gold may edge up to $1,319, as it has cleared a resistance at $1,313, a Reuters technical analyst said. [TECH/C]
Holdings of SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, rose 1.11 percent to 942.61 tonnes on Friday. [GOL/ETF]
Speculators lowered their net long positions in COMEX gold contracts in the week to Sept. 13, U.S. Commodity Futures Trading Commission data showed.
Spot silver rose nearly 2 percent to $19.13 per ounce.
Some aggressive buying has been seen, tripping stops all the way up, said Alex Thorndike, senior precious metals dealer at MKS PAMP Group.
Platinum gained more than 1 percent to $1,028.25, off Friday's 2-1/2-month low of $1,005. Palladium was up over 1 percent at $678.55.