Gold reversed track to fall in late European trade on light profit-taking from earlier gains on Monday, and dealers said the metal would be trapped in a tight range until new leads emerged. Spot gold hit a high of $638.60 an ounce before retreating to $631.40/632.15 by 1400 GMT, against $635.40/636.40 in the US market late on Friday.
"We are going to see probably choppy but directionless trade until it becomes clear where monetary policies are going in major countries this week," John Reade, precious metals analyst at UBS Investment Bank, said.
Gold was unlikely to move strongly higher until firm indications emerged that the US Federal Reserve had paused raising interest rates, analysts said.
A rise in interest rates tends to lift the dollar and make gold costlier for holders of other currencies.
The dollar held near a three-week low against a basket of currencies after Friday's soft US growth data dampened expectations for an interest rate hike in August.
The focus was on Federal Reserve speakers and manufacturing and non-farm payrolls figures due this week.
"Should data come in stronger than expected and the dollar appreciate we see the potential for a reverse of the positive sentiment which has been gathering pace among investors last week," Barclays Capital said in a daily note.
"Overall we expect gold to remain volatile in the near term, capped between recent trading ranges until clearer evidence for a steady downwards trend in the dollar will provide a strong ground for gold prices to resume their upwards trend."
"It's going to be a technically driven session. I mean people will buy at lower levels and sell at the high. There are no factors at the moment," a dealer in Singapore said.
Dealers said they would watch movements in oil and efforts to end the Middle East conflict for direction on metal prices.
Oil rose to around $74 a barrel after a leak on Russia's largest oil export pipeline to Europe added to concerns about supply losses in Nigeria and violence in the Middle East.
Civilians fled battered border villages in south Lebanon on Monday and some fighting flared after the United States won from Israel a brief suspension of devastating air strikes.
Secretary of State Condoleezza Rice said a ceasefire to end the 20-day-old war between Israel and Hezbollah guerrillas could be forged this week, but Israel said it would expand its Lebanon offensive despite the 48-hour halt to air attacks.
"While the conditions remain for a possible investor-led return to levels over $700 before year-end, there are more substantial grounds for (gold) prices to drift sideways to down over the year," Natexis Commodity Markets said.
In other precious metals, spot platinum prices rose to $1,225/1,231 an ounce from $1,220/1,224 late in New York, while palladium fell to $308/$313 an ounce from $310/315.
Silver inched up to $11.32/11.42 an ounce from $11.30/11.40 late in New York.
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