Gold rose one per cent overnight, helped by a slight retreat in the dollar following a rally and as some investors covered their short positions after the metal held the key $US1,200 level.

Spot gold was up 1 per cent at $US1,214.14 per ounce.

This was the metal’s biggest one-day gain in nearly two weeks.

Prices had slipped to their lowest since October 11 at $US1,195.90 in the previous session.

US gold futures settled up $US8.70, or 0.72 per cent, at $US1,210.10

‘The dollar has weakened a little bit and that has helped gold to catch a bid … There has also been some short covering after gold held the $1,200 level well,’ said Walter Pehowich, executive vice president of investment services at Dillon Gage Metals.

‘Also, the rebound in oil prices has given some support from the inflationary point of view.’

An index that tracks the dollar versus a basket of six major currencies was down 0.2 per cent after hitting a 16-month high on Monday.

‘The key driver in the near term continues to be currency movements,’ said Suki Cooper, precious metals analyst at Standard Chartered Bank.

Factors including increased buying by central banks, the return of interest amongst exchange-traded fund investors and seasonal demand for physical gold ‘are acting as a cushion to the downside,’ she added.

Holdings of the world’s largest gold-backed ETF, SPDR Gold Trust, remained near their highest level in more than two months.

Bullion has fallen about 11 per cent from a peak in April as investors instead flocked to the dollar, with US-China trade friction unfolding against a background of higher US interest rates.

The dollar has benefited over the past week from expectations for further US interest rate hikes, as well as concerns over Italy’s budget and ongoing Brexit talks.

The US central bank is expected to increase rates in December for a fourth time this year.

Rising US interest rates increase the opportunity cost of holding non-yielding bullion.

Among other precious metals, silver rose 1.0 per cent to $US14.12 per ounce, after earlier hitting $US13.85 – its lowest since January 21, 2016.

‘With so much silver around and lack of investment, nobody really cares about silver right now. There is so much above ground inventory that is causing silver prices to fall,’ Pehowich of Dillon Gage Metals said.

Palladium rose about 1.5 per cent to $US1,126.20 per ounce, while platinum was down 0.1 per cent at $US833.90 an ounce.