By David Brough
LONDON (Reuters) - Gold built further on its best week since August on Monday, supported by expectations U.S. monetary policy would remain ultra-loose while investors also bought the metal as a hedge against a looming U.S. fiscal crisis.
Gold added 0.29 percent to $1,736.01 by 1143 GMT, holding near a 3-week high around $1,738 struck on Friday and hovering well above a 2-month low around $1,672 hit last week.
U.S. COMEX gold futures for December GCZ2 were up 0.31 percent at $1,736.30 an ounce.
World shares, however, with which gold is often correlated, edged down for a fourth day on Monday, limiting the upside for the precious metal, which is still trading well off highs of almost $1,800 reached in early October.
"It is currently the quantitative easing factor that is providing support to gold, because other fundamental factors have been negative," said Peter Fertig, consultant with Quantitative Commodity Research.
He argued that a potential positive for gold in coming weeks would be improvement in the global economy and, as a result, stock markets and investors' appetite for risk.
"There is potential for further upside in gold prices, but it crucially depends on how Wall Street will react," he said. "If economic data in coming weeks comes in stronger than expected we could see a re-test of the early October highs near $1,800."
A slowdown in China has darkened the prospects for the world economy in recent months, but there is hope in the euro zone's progress in easing its fiscal worries and the prospect of a U.S. recovery next year.
President Barack Obama will also meet business, labour and civic leaders this week ahead of talks with Congress on a deal to head off nearly $600 billion worth of tax hikes and spending cuts that could derail the U.S. recovery.
Gold rallied to $1,795, an 11-month high, on October 5 after the U.S. Federal Reserve pushed ahead with another round of monetary stimulus.
2012 asset returns: http://link.reuters.com/muc46s
2012 commod returns: http://link.reuters.com/faz36s
Gold/USD correlation: http://r.reuters.com/ryx52s
Gold/platinum ratio: http://link.reuters.com/xez92s
At the London Bullion Market Association (LBMA) conference in Hong Kong, president of the Shanghai Gold Exchange told Reuters the bourse will launch an interbank market early next month that will start with spot contracts and gradually offer forward contracts.
Also at the same conference, the general director of the People's Bank of China, Xie Duo, said the central bank has not set a time frame on issuing more gold import licenses to banks, but is keen to further open up the market to the international community.
Last week, the global head of metals at consultancy Thomson Reuters GFMS said he expected China's gold demand to grow 1 percent this year to a record of around 860 tonnes, which means the country will overtake India as the world's biggest consumer of gold for the first time on a yearly basis.
China's leading gold miner, Zijin Mining Group 601899.SS 2899.HK, sees output flat in 2013 after an expected rise of nearly 5 percent this year, as falling production at its top mine is offset by growth elsewhere, a company official said on Monday.
World no. 1 platinum producer Anglo American Platinum AMSJ.J (Amplats) said on Monday it was too early to tell whether South African miners on an illegal strike will return after the company told them to resume work or face sacking.
Spot platinum traded up 0.89 percent to $1,563.75 an ounce. Spot palladium was up 0.88 percent at $609.22 an ounce.
Silver rose 0.37 percent to $32.7 an ounce.
(Editing by Patrick Graham)