Gold prices surged on Saturday, reclaiming Rs 26,000-mark, even as an economic data in the US strengthened expectations over an interest rate hike in the world's largest economy in December.

The yellow metal's prices rose sharply by Rs 440 to end at Rs 26,000 per 10 grams at the bullion market, extending gains for the second straight session underpinned by a sharp increase in demand in the current wedding season.

The rally in the precious metal prices is mainly driven by strength in metal prices in the overseas markets. In contrast to market expectations, international gold prices remained firm despite an improvement in US employment data.

The data showed that the US economy added 211,000 jobs in November while the market had expected the figure to come at 201,000. The unemployment rate remained unchanged at 5% last month.

"A 211,000 gain in November payrolls brings the average monthly gain since June to 206k, close to the monthly pace of 213,000 in the first half of the year and still sufficient to be consistent with continued improvement in the labour market — a prerequisite for the Fed to start raising rates," said Nordea Markets in a note.

In the overseas markets, gold prices more than $2 to $1,086 an ounce, reaching the highest levels in the past three weeks. The metal prices rose as the upbeat US data failed to lift the dollar.

"The muted response of the price of gold to the strong US non-farm payroll numbers on Friday provides further evidence that markets are already expecting a December rate hike by the Fed," said Capital Economics in a note.

"This supports our view that the price of gold won't fall much further (our year-end forecast is $1,050 per ounce) when the Fed actually presses ahead with a rate hike, as this should have already been largely priced in," said Capital Economics.

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