Tokyo - Gold was a touch softer on Monday but remained within sight of a two-month high above $960 touched in the previous session, as bullion retained its sheen in the face of dollar weakness.
Crude oil's rise to a six-month high has also benefited gold, which is often bought both as an alternative to holding the dollar and as an inflation hedge.
Gold markets showed little initial reaction to a report by South Korea's Yonhap news agency, which quoted a ruling party official as saying North Korea had conducted a nuclear test on Monday.
But North Korea's latest provocation, coming after what it called a peaceful satellite launch that sent a rocket over Japan earlier in the year, was not expected to have a lasting impact on investors who have become accustomed to such sabre-rattling.
"By right when w2e get such news, safe havens such as gold should get a bit of a boost," said Adrian Koh, an analyst at at Phillip Futures.
"But I guess the markets are taking the news in their stride, and perhaps we've got to see more details on the test before acting on it," he said.
Public holidays on Monday in the United States and the United Kingdom could also have been a factor in the lack of market reaction, he added.
Gold was at $954.20 per ounce at 03:11 GMT, down 0.2% from New York's notional close of $955.85.
On Friday, bullion touched a high of $961.30 an ounce, its highest since March 20.
"Gold has most certainly been driven by recent weakness in the dollar and that looks set to continue for the time being," said Darren Heathcote of Investec Australia in Sydney.
The dollar steadied on Monday, holding near a five-month low hit against a basket of currencies last week when concern that the United States may lose its AAA-rating status prompted investors to sell the world's reserve currency.
Heathcote said if gold breached the next key resistance level of $962, it could move towards $1 000. The metal last rose above $1 000 in late February, its highest level since March 2008.
Oil prices fell towards $61 a barrel on Monday, shedding some of the previous session's gains but hovering not far off their six-month high, on growing risk aversion after North Korea said it had successfully conducted a nuclear test.
"Oil is certainly helping (gold), $62 a barrel is pretty good, pretty bullish," Heathcote said.
A return of investor interest in gold was also underscored by the slight rise in gold-backed exchange-traded funds.
The world's largest gold-backed exchange-traded fund, the SPDR Gold Trust, said its holdings rose to 1 118.76 tonnes as of May 22, up 13.14 tonnes or 1.2% from the previous business day.
Holdings hit a record high of 1 127.68 tonnes in early April.
- Reuters