Gold prices gained nearly 1 percent on Monday after Greece's politicians sealed a deal to form a coalition government, while continued uncertainty about resolving the zone's debt crisis supported safe-haven demand in bullion.
According to Reuters, Greece's politicians agreed on Sunday to form a unity government to approve a euro zone bailout, but uncertainty remained over who will lead the new Greek government amid bitter political divisions and the unspecified timing of early elections.
Fuelling this gloomy outlook were events in Italy, where Prime Minister Silvio Berlusconi has one day left before a parliament vote on public finance after his government failed to adopt reforms to defuse a dangerous debt crisis.
'Investors still lack confidence in the situation in Europe,' said a Shanghai-based trader, 'The dollar, as well as bonds and gold, will benefit due to their safe-haven nature.'
He added that strong buying interest in the Shanghai market also contributed to the rise.
The popular Shanghai gold spot deferred contract rose more than half a percent to 361.40 yuan per gram, or $1,772.8 an ounce.
Spot gold jumped as much as 1.2 percent to $1,774.38, its highest since Sept 22, before easing to $1,769.99 by 0513 GMT.
US gold rose to $1,773.9, also its highest in six and a half weeks, before giving up some gains to $1,772.10.
The MF Global bankruptcy and its aftermath also drained activity in markets, traders said.
Money managers, including hedge funds and other large speculators, raised their bullish bets in gold futures and options in the week to November 1 as the price of bullion surged to its highest in five weeks, above $1,750 an ounce, data on Friday showed.
Holdings of the SPDR Gold Trust, the world's biggest gold-backed exchange-traded fund, gained 1.513 tones on the day to 1,245.064 tones by November 4, the highest in more than a month.
Gold prices have found good support on the downside from physical demand with interest emerging from the festival season in India as well as China, though volumes have slowed, Barclays Capital said in a research note.
The gold flow from Hong Kong to mainland China in September jumped sixfold on the year to a record of 56,896 kilograms, boosting the total of the first nine months to 201,068 kilograms, more than double that of a year earlier, the Hong Kong Census and Statistics Department said.