Gold rose around 1 percent on Monday with investors chasing the precious metal as the euro weakened against the dollar on concerns over euro zone debt and Ireland's bailout package. Tensions on the Korean peninsula offered additional support following an artillery firing drill by the South Korean military on a disputed island near the border with the North. But dealers expect slow trading ahead as the year-end nears.
Spot gold added $13.25 an ounce to $1,386.25 an ounce by 0717 GMT after rising as high as $1,388.05 an ounce, still well below an historical high around $1,430 hit earlier this month. US gold futures for February rose $8.2 an ounce to at $1,387.4 an ounce.
Bullion has risen as much as 30 percent this year. Some dealers in Hong Kong saw physical buying related to the tensions on the Korean peninsula, which could escalate into war. The US the US envoy to the United Nations Susan Rice said disagreements on the UN Security Council over the crisis are so severe that it is unlikely they can be resolved.
There was a lack of activity in the physical market in Japan despite escalating tensions in neighbouring South Korea. Gold bars remained at a discount of 75 US cents to the spot London prices.
The world's largest gold-backed exchange-traded fund, SPDR Gold Trust, said its holdings rose to 1,298.940 tonnes by December 17 from 1,283.757 tonnes on December 16. The holdings hit a record at 1,320.436 tonnes on June 29. iShares Silver Trust , the world's largest silver-backed exchange-traded fund, said its holdings dropped to 10,903.34 tonnes by December 17 from a record of 10,964.14 tonnes on December 14.