LONDON, Dec 29: Gold rose nearly 3 per cent on Monday as tensions in the Middle East sparked a rally in oil prices and boosted interest in the precious metal as a haven from risk, while the dollar weakened sharply against the euro.

Spot gold reached a session high of $889.55 an ounce, its strongest level since Oct 10, before easing to $883.70/885.70 at 1014 GMT from $866.80 in New York late on Friday.

Over the weekend, the news out of the Middle East has not been very good and overnight we saw a lot of buying of gold, and of everything -- oil is up, platinum group metals are up, Afshin Nabavi, head of trading at MKS Finance, said.

Geopolitical tensions increases interest in bullion as a safe haven investment, and are also a prime factor driving oil prices, which also influences gold, higher.

Oil rose nearly 10 per cent to above $41 a barrel as the violence served as a reminder that political tensions could threaten Middle East crude supplies.

The dollar weakened against the euro, helping to lift gold.

Among other precious metals, silver tracked gold higher to $10.90/10.98 an ounce from $10.64 an ounce late on Friday.

Earlier it touched a one-week high of $11.01 an ounce.

Investment demand for silver-backed exchange-traded funds remains strong.

The New York-based trust has recorded an inflow of more than 106 tons of silver since the beginning of December.

Platinum group metals also climbed, with platinum touching a session high of $931 an ounce, its strongest in 10 weeks. Later it was quoted at $919.50/924.50 an ounce against $888.50.

The white metal should benefit from further bargain hunter interest in the coming sessions, with chart resistance pegged at $938/44/74, James Moore, an analyst at TheBullionDesk.com, said.

However the metal still remains overshadowed by slowing auto demand and shifting market fundamentals, he added.

Spot palladium was quoted at $181/186 an ounce, up nearly 5 per cent from $174.50 in New York late on Friday. —Reuters