Gold pared losses on Monday as the dollar ceded ground to the euro, after the precious metal earlier fell more than 1 percent, but it remained under pressure as impetus from unrest in the Middle East petered out. Spot gold was bid at $1,417.00 at 1404 GMT against $1,427.75 late in New York on Friday, having earlier slipped as low as $1,409.95 an ounce. US gold futures for April delivery fell $8.80 an ounce to $1,417.40.
The precious metal rallied to a record $1,447.40 an ounce last week as violence in the Middle East and North Africa and re-emerging sovereign debt concerns in the eurozone prompted risk-averse buying of gold.
But it struggled to maintain traction at that level. "In the March rebound, the momentum wasn't there for follow-through buying," said VTB Capital analyst Andrey Kryuchenkov. "Yes, we touched a fresh high, but there were no significant longs created." He said concerns over how far unrest in the Middle East and North Africa could spread are starting to ease, while worries over the indebtedness of some smaller eurozone economies are softer than they were a year ago. The euro recovered versus the dollar after European Central Bank President Jean-Claude Trichet said inflation rates are durably above the price stability target. Investors have been primed for the ECB to raise rates as soon as next month.
The dollar lost some of the support it had garnered from last week's comments from Federal Reserve official Charles Plosser, who said the central bank will have to reverse its easy money policy in the "not-too-distant future" to avoid inflation. Prospects that US monetary policy may tighten are usually seen to be negative for gold as a non-interest bearing asset. Elsewhere, German government bonds fell on news the European Central Bank plans to throw a lifeline to Ireland's banks, while US Treasuries eased as investors upped interest rate hike bets.
Portuguese bonds meanwhile remained under pressure as the country faced snap elections, which could make it difficult for Lisbon to finance itself ahead of bond redemptions in April and June.
Concerns over the fiscal health of the eurozone remain a supporting factor for gold, but may not prevent an imminent further correction, analysts said. "We can fall back to $1,400, maybe even a bit below, and it still looks good overall. There is still a lot of uncertainty out there," said Simon Weeks, head of precious metals at the Bank of Nova Scotia. "But unless there are more black swan events out there, I think gold will struggle on the upside."
Elsewhere a report from the US Commodity Futures Trading Commission on Friday showed speculators in gold and silver futures and options increased their net long positions as prices rose last week. "Gold's ascent has ... been relatively orderly and volatility has remained relatively low despite higher spot prices," said UBS in a note.
"Given persistent global uncertainties, we retain our one-month forecast at $1,450 as gold should continue to fare well, but significant moves to the upside will require stronger participation by investors." Silver was bid at $36.89 an ounce against $37.29. The metal rose 6.4 percent last week on gold's coat-tails, hitting its highest since 1980 at $38.13 an ounce. Among other precious metals, platinum was at $1,730.24 an ounce against $1,742.45 and palladium at $742.47 against $743.97.
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