Gold prices fell 1.6 percent on Monday as the dollar's rise and weaker oil prices prompted selling by investors who are wary of taking large buy positions after last week's selloff.
Bargain hunting ran out of steam quickly after spot gold edged as high as $580.10 as investors found few reasons to take new buys positions actively. Gold was weighed down around its seven-day moving average (MA) of $580 and was also sluggish due to the weakness in Tokyo gold futures.
Spot gold was trading at $568.75/569.50 an ounce, down 1.6 percent from $578.00/578.70 late in New York on Friday. Gold climbed as far as $585 on Friday. "The dollar's strength is clearly negative for gold," said Takashi Ogura, manager at Kanetsu Asset Management Co Ltd.
"Gold has rebounded from lows, but it's still very fragile as there are plenty of people looking for chances to sell on strong price gains," Ogura said. Spot gold was put under strong selling pressure last week, falling as far as a three-month low of $543 last on Wednesday after reaching a 26-year high of $730 in mid-May.
Despite gold being off the three-month low, traders were not convinced about the outlook for the market as the latest strength of the dollar undermining sentiment. The dollar struck an eight-week high of 115.78 yen on Monday as the market braced for an interest rate rise by the Federal Reserve in June and possibly another hike in August.
The US currency received additional support against the yen as the Japanese unit was undermined by reports of a possible missile test by North Korea. A stronger dollar usually pressures gold, which is generally priced in dollars globally, because it becomes costlier in key overseas trading areas like Europe and Asia.
A weaker oil price was another factor weighing on gold. The key US light, sweet crude price was easing from $70 on Monday, with dealers weighing more positive signals from Iran on its atomic programme.
Gold often tracks oil prices because investors use the metal as an inflation hedge when energy prices are high. "The market is still watching gold with caution as there is a bigger chance for global funds to flow out from commodities," Kanetsu's Ogura said.
Key most-distant April gold on the Tokyo Commodity Exchange lost ground in the afternoon. Traders said investors were reducing positions in gold and other commodities as Japanese share prices were capped.
"People started selling TOCOM gold as sentiment was hurt as Nikkei and Asian stocks struggled," said a senior trader at a Japanese trading house. "In this mood, it's very difficult to take new positions in gold," the traders said.
"But I still believe the long-term trend is bullish and the spot price will be supported below $550."
The 200-day MA for spot gold was around $548. The key TOCOM gold contract was trading at 2,137 yen a gram, down 26 yen or 1.2 percent from Friday's close.
It was moving in a range of 2,124 to 2,171 yen. Silver fell to $9.95/10.05 an ounce from $10.13/10.23 late in New York. Platinum drifted down to $1,139/1,146 an ounce from $1,147/1,155 in New York.
Sister metal palladium edged down to $298/305 an ounce from $300/305.