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LONDON (Reuters) - Gold rose on Tuesday as a wave of risk aversion due to growth worries in China and rising tensions in the Middle East triggered demand for the metal.
Spot gold was up 0.6 percent at $1,080.43 an ounce by 1234 GMT. On Monday, the metal jumped as much as 2.2 percent to a four-week high of $1,083.30 after data showed Chinese factory activity contracted for a 10th straight month in December.
"More weakness in China ... would be more positive for gold but investors would need to see more evidence of systemic issues there, which is still unlikely," Julius Baer analyst Carsten Menke said.
"That could be the only longer lasting upside for gold in an otherwise bearish outlook due to sound growth in the U.S. and lack of inflation risks."
A 7 percent slide in Chinese shares on Monday sparked by weak economic data rekindled worries over global growth on the first day of trading in 2016, and sent European and U.S. stocks diving.
China stocks closed mixed on Tuesday in volatile trade, with indexes swinging into and out of negative territory, while European indices were mixed. [.EU]
"The first important resistance zone (for gold) lies between $1,083 and $1,087, with the next major level at $1,100," said MKS Group in a note.
Bullion, often seen as a alternative investment in times of political and financial uncertainty, is also benefiting from a shift away from risk along with the Japanese yen and U.S. bonds.
Saudi Arabia's execution of a Shi'ite Muslim cleric over the weekend provoked protests among Shi'ites across the region. Saudi Arabia also said it would end air traffic and trade links with Tehran.
Safe-haven rallies tend to be short-lived and gold could see the focus shift back to U.S. monetary policy soon.
Gold slid 10 percent last year on fears that higher U.S. rates would lower demand for the non-interest-paying asset, while boosting the dollar. A stronger greenback makes dollar-denominated gold costlier for holders of other currencies.
San Francisco Federal Reserve President John Williams said on Monday he is unfazed by the weak economic data out of China that has spooked Wall Street, and sees three to five U.S. interest rate hikes this year as reasonable given the strength of the U.S. economy.
Investor sentiment remains bearish. Hedge funds and money managers boosted their net short position in COMEX gold to a fresh record in the week to Dec. 29, U.S. government data showed on Monday.
Silver rose 0.6 percent to $13.95 an ounce, having ended 2015 down 11.7 percent.
Among industrial metals, platinum was up 0.9 percent to $891.50 an ounce and palladium gained 1.5 percent to $546.50, after falling more than 4 percent on Monday.
Additional reporting by A. Ananthalakshmi in Singapore; editing by David Evans and Adrian Croft