Gold rose as traders assessed trade tensions and the Federal Reserve's interest rate direction, with some buying back into bearish positions they had built up earlier after bullion hit a key level.

The precious metal's rise to $3,250 an ounce helped trigger some short covering, sending it up 1.7%, according to Ole Hansen, head of commodity strategy at Saxo Bank A/S.

"Gold has seen an underlying bid throughout the day as the market considers whether we've passed peak optimism," Hansen said, adding that technical buyers rushed in after the $3,250 level was broken.

Gold suffered its worst weekly decline since November last week amid easing trade tensions. Now, with Moody's Ratings downgrading the U.S., traders are reassessing the impact of President Donald Trump's tariff policies.

With some progress made on a trade deal between the U.S. and other countries including China, many analysts still expect tariffs to slow the economy and stoke inflation. That's a positive environment for gold as it's seen as a hedge against economic uncertainty. Gold is up 25% this year, driven by safe-haven demand as well as strong inflows into bullion-backed exchange-traded funds and speculative demand from Chinese investors.

Separately, China imported the most gold in almost a year last month despite record prices, after rising demand for the precious metal prompted the central bank to ease restrictions on bullion inflows. Total gold imports into the country reached 127.5 metric tons, up 73% from the previous month. Gold rose 1.4% to $3,276.33 an ounce as of 11:11 a.m. in New York. The Bloomberg Dollar Spot Index was little changed. Silver, platinum and palladium all advanced. (Newsmaker23)

Source: Bloomberg