Spot gold firm near three week high

Gold was trading close to a three week high holding its ground from the previous session on hopes that a surprise rate cut in China would boost demand for bullion in the top consumer, though a strong dollar capped gains.

China cut interest rates unexpectedly on Friday, stepping up efforts to support the world's second biggest economy and could even be prepared to reduce them again.

Bullion, seen as a hedge against inflation and a sluggish economy, also got support from comments from European Central Bank President Mr Mario Draghi that opened the door for more drastic measures to prevent the euro zone from sliding into deflation.

Mr Meir said that spot gold was steady at USD 1,200.20 an ounce by 0736 GMT, after gaining 0.6% on Friday, when it hit a three week high of USD 1,207.70. The Federal Reserve's relatively hawkish position compared to other central banks and strength in the dollar should keep gold's gains in check. Bullion has been pressured by a strong dollar in recent weeks, with the metal hitting a four and a half year low earlier this month.

The dollar was trading close to a four year high. A strong greenback makes dollar denominated gold more expensive for holders of other currencies. Data on speculative positions in gold also buoyed sentiment.

The Commodity Futures Trading Commission said that hedge funds and money managers boosted their net long position in gold futures and options to 60,307 lots in the week to Novemebr 18. That marked the biggest increase in a month and the highest bullish stance since late October.

In the physical markets, Chinese prices were trading at a premium of USD 1 to USD 2 an ounce on Monday, unchanged from the previous session. Traders were hoping that a cut in interest rates would revive appetite for gold jewellery, bars and coins in China.

Demand slid by more than fifth in the first nine months of the year, according to the China Gold Association, as buying eased after record consumption last year and as consumers became wary of falling prices.