By Peter Hobson
LONDON (Reuters) - Gold rose on Monday as tensions over North Korea fuelled safe haven demand, while doubts over U.S. President Donald Trump's ability to enact pro-business policies pushed U.S. bond yields to near two-month lows and world stocks fell. [MKTS/GLOB] [US/]
Investors were braced for North Korea's response to computer-simulated military exercises begun by South Korean and U.S. forces on Monday that will continue until Aug. 31.
"Gold is being supported by the war games and the uncertainty in Washington," said Saxo Bank analyst Ole Hansen.
Spot gold was up 0.3 percent at $1,287.31 an ounce at 1013 GMT, while U.S. gold futures for December delivery were 0.1 percent higher at $1,293 an ounce.
Gold on Friday surged above $1,300 an ounce for the first time since November following attacks in Spain and rising fears over Trump's ability to push through tax reform and investment.
But prices fell after Trump fired his nationalist and anti-globalisation chief strategist Steve Bannon.
Hansen said gold could fall further due to a large build-up of speculative long positions, which last week rose in COMEX gold for a fifth consecutive week to a two month high.
"We've seen in gold's previous attempts to break higher that once it becomes clear that it is not going to break, selling accelerates from longs being reduced," said Hansen.
Sam Laughlin, a trader at MKS PAMP, said gold could attempt to rise above $1,300, but that "any corrective moves through $1,280-$1,285 has the potential to extend toward $1,265."
Investors were looking ahead to an annual meeting of central bankers in Jackson Hole this week, with European Central Bank President Mario Draghi and U.S. Federal Reserve Chair Janet Yellen to speak on Friday.
Fed officials have indicated they intend to raise interest rates again this year, while sources told Reuters that Draghi would not deliver any fresh policy messages.
Gold is sensitive to rising interest rates because they increase bond yields, raising the opportunity cost of holding non-yielding bullion, and tend to boost the dollar, in which gold is priced.
In other precious metals, silver was up 0.5 percent at $17.01 an ounce.
Platinum was 0.4 percent higher at $978.95.
Autocatalyst metal palladium was 0.9 percent higher at $931.60 an ounce after reaching $934, its highest in 16 years, on Friday, helped by a rally in industrial metals.
(Additional reporting by Apeksha Nair in Bengaluru; Editing by Mark Potter)