Gold traded near its highest in four weeks on Wednesday after tepid US jobs data bolstered hopes that the Federal Reserve will maintain stimulus policies supportive of bullion prices.

US nonfarm payrolls in September increased by a lower-than-expected 148,000, raising fears about economic recovery amid a budget battle in Washington.

Spot gold ticked up 0.03 per cent to $1,340.49 an ounce by 0245 GMT, after rallying nearly 2 per cent in the previous session to $1,344.46 - the highest since September 20. US gold was trading near its three-week high.  

A continuation of the Fed's $85 billion monthly bond purchases would burnish gold's inflation-hedge appeal.

"Gold prices will hold at this level because of poor jobs data and possible delay in tapering until next year," said Helen Lau, an analyst at UOB Kay Hian Securities in Hong Kong.

"The reason why they will postpone tapering is because the Fed needs reliable jobs data to make their decision and this data will be distorted temporarily by the October shutdown."

The jobs data on Tuesday indicated that the economy was losing its momentum even before a 16-day shutdown earlier this month that will likely dampen October numbers. Fed officials have said they need to see strong recovery in the labour market before they begin any tapering.

Most US primary dealers polled by Reuters on Tuesday believe the Fed will not start cutting its monthly bond purchases until March of next year and said the recent government shutdown and standoff over raising the US debt ceiling had a significant impact on the Fed's timing.
 
PHYSICAL DEMAND

Gold premiums in India hit $120 an ounce to London prices on Tuesday as the domestic market failed to get enough supply to meet strong festive demand.

In China, Shanghai spot prices were trading at a premium of $7 an ounce.

Gold demand in China could increase as higher home prices stoked inflation fears, said Lau of UOB Kay Hian. - Reuters