Gold rose 1.6 percent on Monday, its biggest one-day gain in a month, as bullion resumed its role as a haven from turmoil following its worst monthly loss since the financial crisis in 2008.
Bullion held onto early gains throughout the session, buoyed by fears that Greece would fail to avoid a default on its debt and the effect that may have on European banks. Investors also returned to bullion after an 11 percent slump last month corrected a rally that some said had gone too far, too fast.
Better-than-expected manufacturing data failed to halt another nearly 3 percent slide on Wall Street, which provided additional support for bullion. Gold remains one of the best-performing assets, with 12 straight quarters of gains.
Expect gold to go higher on concerns about the global economy, currencies and loss of value. Safe-haven asset buying will continue until there is something better for investors to move into, said Miguel Perez-Santalla, vice president of sales of Heraeus Precious Metals Management.
The flight to quality was also evident in the U.S. dollar, which rallied more than 1 percent, and Treasuries, while gold also benefited from improving physical demand.
Spot gold was up 1.6 percent at $1,649.30 an ounce by 3:00 p.m. EDT. The metal posted its first three-day winning streak in a month.
U.S. gold futures for December delivery settled up $35.40 at $1,657.70 an ounce. Markets are closed in No. 2 gold consumer China for a public holiday.
Trading volume was half of its 30-day average, suggesting the metal's rally could easily run out of steam.
Gold's gain was well off its record of above $1,920 an ounce set in early September, after being hit by a sharp margin increase and heavy bouts of liquidation by hedge funds.
CME Group Inc (CME.O), the biggest operator of U.S. futures exchanges, said it will more than double the amount of physical gold it can accept from its clearing members as collateral to $500 million from $200 million.
PHYSICAL DEMAND BOOMS
Bullion's 20 percent fall from that record high has tempted physical consumers of the metal back into the market.
We have the start of a new quarter, and gold prices typically respond very well toward the end of the year because of seasonal demand. That has attracted a lot of investors today, said Phillip Streible, senior market strategist at futures broker MF Global.
Physical demand often peaks in the fourth quarter due to the Indian wedding season and Christmas, both of which are traditionally major gold buying events.
Demand from key gold-buying regions has picked up, pushing Asian premiums to their highest since the start of the year.
Wealthy individuals should buy gold as it has become an attractive investment following last month's sharp reversal, private bankers in Asia said on Monday.
Gold at $2,000 is absolutely, potentially on the uptrack, despite the sell-off. That is sort of the immediate target, Marcel Kreis, Credit Suisse's head of private banking for Asia-Pacific, told the Reuters Wealth Management Summit in Singapore.
Silver was up 1.8 percent at $30.44 an ounce, having earlier hit $31.38. It fell by nearly 28 percent in September, its biggest one-month drop since the early 1980s.
Despite encouraging sales improvement for major U.S. automakers, platinum group metals -- mainly used as an auto catalytic converter -- fell broadly with a disappointing economic outlook.
While General Motors Co (GM.N) posted a 20 percent gain in September sales, auto sales in Europe fell to the lowest level in years.
Platinum fell 1.9 percent to $1,495.26 an ounce, while palladium dropped 3.9 percent to near one-year lows at $585.99.