Gold extended its recovery on Monday, touching the strongest in nearly two weeks as the dollar weakened, the Chinese yuan rebounded and some investors reversed their bearish gold bets. Spot gold was up 0.9 percent at $1,264.82 an ounce by 1218 GMT, its highest since June 26. U.S. gold futures for August delivery rose 0.8 percent to $1,266 an ounce.

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There has been a strong correlation recently between the yuan and gold, analysts said. "I think most likely the yuan will remain volatile but (I don`t expect ...) aggressive weakness, so that means the only thing that is driving gold at the moment is the dollar, which is somewhat weaker," said Georgette Boele, commodity strategist at ABN AMRO in Amsterdam.

The yuan rose half a percent in offshore markets to 6.6292 against the dollar, further away from the lows hit in June - its biggest ever monthly fall. At the same time, the dollar index weakened and the euro gained.

A weak U.S. dollar makes greenback-denominated gold cheaper for holders of other currencies, especially in Europe when the euro rises. The euro hit a session high after European Central Bank Governing Council member Ewald Nowotny said the bank could decide this month to end bond buying by the end of this year.

OCBC analyst Barnabas Gan said some investors had bought gold to cover their short positions.

"With the ongoing U.S.-Sino trade tensions, the resignation of David Davis will likely be a side-show, though it may raise some concerns amongst market-watchers depending on how the overall Brexit issue progresses," he added.

Britain`s Brexit Secretary David Davis said on Monday he had resigned to try to stop Prime Minister Theresa May from handing too much power to the European Union, increasing the pressure on a British leader struggling to overcome Brexit divisions.

It was unclear whether a rebound in spot gold would continue after it hit a seven-month low of $1,237.32 last week, Boele said.

"This could already be the bottoming out, but I think you will still get another test lower because we expect a recovery in the dollar and higher yields for the coming quarter."

Holdings of SPDR Gold Trust, the world`s largest gold-backed exchange-traded fund, fell 0.15 percent to 802.24 tonnes on Friday.

Among other precious metals, silver rose 1.3 percent to $16.20 an ounce and platinum gained 1.3 percent to $851.80 per ounce. Both the metals hit their highest since June 27 during the session.

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Palladium gained 1 percent to $962.50 an ounce, its highest since June 21.