Gold traded firmly above $1,200 an ounce on Monday, retaining gains from the previous session on hopes that a surprise rate cut in China would boost demand for bullion in the top consumer.

Spot gold was steady at $1,202.20 an ounce by 0028 GMT, after gaining 0.6 percent on Friday.

Gold got a boost from short-covering after China cut interest rates unexpectedly on Friday, stepping up efforts to support the world’s second-biggest economy as it heads towards its slowest expansion in nearly a quarter of a century, saddled under a mountain of debt.

China’s leadership and central bank are ready to cut interest rates again and also loosen lending restrictions, concerned that falling prices could trigger a surge in debt defaults, business failures and job losses, said sources involved in policy-making.

Bullion also got support from comments from European Central Bank President Mario Draghi that opened the door for more drastic measures to prevent the euro zone from sliding into deflation.

Gold is seen as a hedge against inflation and slowing economy.

Reuters : Reuters