Gold edged higher on Monday as a possible U.S. government shutdown prompted safe-haven buying, and the metal was on track to record its best quarter in a year despite a cloudy outlook for U.S. stimulus.
Gold has gained nearly 9 percent in July-September, boosted by a big short-covering rally, geopolitical tensions in the Middle East and some weak U.S. economic data.
The gains bring to an end gold's longest quarterly losing streak since 2001 - the metal fell more than 30 percent in the three quarters to June on fears of an early end to the U.S. Federal Reserve's bond-buying stimulus.
"Gold has behaved like a safe-haven currency off late. The market is pricing in a possible government shutdown," said Barnabas Gan, an analyst at OCBC Bank in Singapore.
The likelihood of a U.S. government shutdown increased after the Republican-controlled House of Representatives early on Sunday passed a measure that ties government funding to a one-year delay of President Barack Obama's landmark healthcare restructuring law.
If a stop-gap spending bill for the new fiscal year is not passed before midnight on Monday, government agencies and programs deemed non-essential will begin closing their doors for the first time in 17 years.
"It is definitely a short-term phenomenon. The sentiment towards gold is still expected to be bearish for the full year," said Gan.
Spot gold rose 0.2 percent to $1,338.79 an ounce by 0328 GMT, adding to a 1 percent gain on Friday.
Gold could also get some support in the near term from the uncertainties around the mid-October deadline to raise the U.S. debt ceiling.
Despite the September quarter's gains, gold is down 20 percent for the year and any recovery hinges on the fate of the Fed stimulus.
Gan expects prices to fall to $1,250 by the year-end if a stimulus tapering is announced in October and prices to climb to $1,400 if there is no cut.
In its September meeting, the Fed stuck with its bond-buying stimulus, surprising markets which had expected a small reduction from this month.
The Fed meets next on October 29-30.
"It seems to us that the central bank will likely stand pat again, perhaps not wanting to take two completely different directional views on rate policy in the span of just 30 days," INTL FCStone analyst Edward Meir said in a note.