Gold steadied around two-month highs on Monday on uncertainty about a possible reduction in US monetary stimulus, and supported by the first net weekly flow into the top exchange-traded gold fund in months.

Spot gold was down slightly on the day at $1,373.61 an ounce by 1118 GMT, having earlier hit a two-month peak of $1,384.10. US gold futures for December delivery were up $2.60 an ounce at $1,373.60.

Gold has gained about 8 per cent in the last nine sessions due to uncertainty about Federal Reserve policy, technical buying triggered by milestone lows hit in June and fresh inflows into the world's biggest bullion-backed ETF.

"The market is a bit nervous ahead of the tapering discussion," said Georgette Boele, a strategist at ABN Amro.

She said that while prices had benefited from the uncertainty, the overall outcome was looking negative, given that gold loses allure in a less benign interest rate environment.

"If the economy is doing well and interest rates start to move up, it will be very difficult for gold to move higher."

Gold prices have lost nearly a fifth of their value so far this year.

SPDR Gold Trust, the world's largest gold-backed ETF, posted a 0.4 per cent increase in its holdings last week to 915.32 tonnes.

Investors have withdrawn about $19 billion from the fund this year, weighing heavily on gold prices.

But hedge funds and money managers raised net long positions in gold and silver, a report by the Commodity Futures Trading Commission showed on Friday, indicating that investors' sentiment towards gold may be changing.

US DATA, FED MINUTES

Shanghai gold futures rose 2 per cent on Monday. Demand from China and India is set to soar to a record 1,000 tonnes each in 2013, the World Gold Council said last week.

The dollar was broadly flat versus other major currencies on Monday.

US consumer sentiment ebbed in August, and residential construction rose less than expected last month, potentially dimming hopes of an acceleration in economic activity in the third quarter and increasing gold's safe-haven appeal.

Minutes of the Fed's July policy meeting are due to be released on Wednesday, and they could strengthen expectations for a September tapering of its commodities-friendly stimulus measures.

"Our economists expect the minutes to reveal that the committee members viewed the improvement in labour markets and reduced downside risk as sufficient to signal that should the current trends continue, many on the committee stand ready to reduce the pace of asset purchases in September," Barclays said in a note.

Silver rose to its highest in almost three months at $23.60 an ounce, and was last trading at $23.19. The metal saw its best week in gains since September 2008 on Friday, up around 13 per cent.

Platinum was last trading at $1,513.49 and palladium dropped 1 per cent to $752.50. - Reuters