NEW YORK/LONDON Gold gained around 1 percent on Monday, moving in line with riskier assets rather than safe havens, boosted by hopes that European leaders were tackling the region's debt crisis and signs of resiliency over China's economy.
Bullion rose for a second day on optimism that the EU was nearing agreement on bank recapitalization and how to leverage their rescue fund to stop bond market contagion. News that China's manufacturing sector grew in October also lifted gold as commodities led by copper and crude oil rallied.
Gold was up 2 percent over the last two sessions. The metal has appeared to lose its usual safe-haven status, with its prices largely moving in tandem with equities.
Price volatility of gold futures has fallen to its lowest level since mid-August, when bullion was near its all-time highs, a sign that option traders are not anticipating big moves in the near term.
"Gold has moved away from a more traditional safe haven to a risker asset, commodity-type play. And riskier assets are all trading in tandem right now with the Europe situation," David Meger, director of metals trading at futures broker Vision Financial Markets.
Spot gold was up 0.9 percent at $1,655.04 an ounce by 2:31 p.m. EDT, following a 2 percent decline last week.
The 30-day implied volatility of gold fell to 26 on Friday near a two-month low, Reuters data showed. Wild price swings have sent bullion about $300 off its early September record, and price volatility hit a peak of 37 on September 26.
Jonathan Jossen, COMEX gold options floor trader, said that the drop in volatility indicated investors were not expecting big moves for the underlying futures in the near term.
U.S. gold futures for December delivery settled up $16.20 at $1,652.30. Futures volume was around half its 30-day norm during Monday's gains, similar to a weaker-than-usual trend during the last several weeks, suggesting bullion's rally may not hold.
COMMODITIES GAINS, PHYSICAL DEMAND HELP
Bullion rose on commodity gains led by copper's 7 percent rally, after data showed China's vast manufacturing sector picked up moderately in October, snapping a three-month contraction and underscoring strong domestic demand in the world's second-largest economy.
"Gold popped up this morning along with most of the commodities markets. The beginning of the EU debt resolution has had a strengthening effect on commodities and equities as a whole," said Credit Suisse analyst Tom Kendall.
Despite some progress over the weekend, final decisions from the EU leaders are deferred until a second summit on Wednesday and sharp differences remain over key issues related to Greece.
Physical demand from the world's biggest gold buyer India near the Hindu festival of Diwali - a major gold buying event - supported precious metals. Dealers said that Indian consumers chose the cheaper silver instead of gold in hopes of future price gains.
Silver was 1.1 percent higher at $31.68 an ounce.
Among platinum group metals, platinum rose 2.5 percent to $1,543.50 an ounce, while palladium climbed 4.5 percent to $638.97 an ounce.
(Additional reporting by Simon Price in London and Rujun Shen in Singapore; Editing by Marguerita Choy)