Gold hit a 4-1/2 month high on Monday before easing to more modest gains on speculation that the U.S. Federal Reserve may unveil another round of monetary stimulus at a key central bankers' meeting later this week.
The precious metal, a traditional inflation hedge, received a boost after Fed Chairman Bernanke last week told a U.S. Congressional panel in a letter that the Fed has room to deliver additional monetary stimulus to boost the U.S. economy.
Bullion investors are keenly awaiting the annual symposium of central bankers and finance ministers at Jackson Hole, Wyoming, where Bernanke will give a speech on Friday which will be closely watched for clues into the prospect of further bond-buying from the Fed.
"There certainly seems to be a premium in advance of the potential hint, but the downside is limited as whether Bernanke gives an indication of their intentions or not. Most economists agree the economic measures in the U.S. point to a need for some action soon," said Carlos Perez-Santalla, trader at PVM Futures.
Spot gold hit a 4-1/2 month high of $1,676.45 an ounce before steadying to post a 0.2 percent gain at $1,672.38 an ounce by 12:02 p.m. EDT (1602 GMT).
The metal rose nearly 3.5 percent last week, its biggest one-week rise since late January.
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U.S. gold futures for December delivery were up $2.20 an ounce at $1,675.10 in holiday-thinned trade, with volume sharply below its average, preliminary Reuters data showed.
The U.K. market was shut Monday for a bank holiday, and many U.S. trading desks were thinly staffed at the beginning of the last week of traditional summer vacation.
Spot silver was up 1.3 percent at $31.16 an ounce after hitting a near-four-month high of $31.26, building on last week's gain of nearly 10 percent which was its largest weekly rise since last October.
ALL EYES ON WYOMING MEETING
Gold investors will likely stay cautiously upbeat as Bernanke has in the past announced his intention on monetary easing at the Fed's annual symposium at Jackson Hole.
Expectations for a third round of bond-buyback program known as quantitative easing ran high after Fed officials sharply revised down their forecasts for U.S. economic growth in June, and another potential round of downward revisions could come at the Fed's September meeting, economists said.
Investors also piled into physically backed exchange-traded gold funds, lifting the holdings of gold ETFs tracked by Reuters to a historical high above 71.4 million ounces.
Holdings of silver ETFs rose to 504.4 million ounces, the highest level since last May.
Spot platinum was up 0.4 percent at $1,547.34 an ounce, having risen 5.4 percent last week, its biggest one-week rise since February. The price has risen after the violence in South Africa, source of 80 percent of the world's platinum.
Spot palladium edged up 0.2 percent at $650.04.