The price has since found support above $1,200. Premiums for physical gold at the Shanghai Gold Exchange stayed firm at around $4-$5 an ounce over the global spot benchmark on Monday.
U.S. gold for April delivery gained 0.7 percent to $1,221.90 an ounce.
China's central bank said the 25 basis point cut in the benchmark lending and deposit rates "does not represent a change in the direction of monetary policy".
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"We do not rule out another 25 bps rate cut alongside further RRR (reserve requirement ratio) easing in the next 3-6 months if oil prices stabilize and food inflation remains under wraps," Mizuho Bank said in a note.
Lee expects China's gold imports to improve this year after falling to 813.13 tons last year from a record 1,158.16 tonnes in 2013.
"2014 was a disastrous year, given the excessive buying in 2013. This year there should be a normalization of buying in China," he said.
Gold may struggle to keep gains if Friday's U.S. non-farm payrolls data "proves to be exceptional again", added Lee. Expectations of a U.S. interest rate rise amid an improving economy led by gains in its labor market have weighed on gold prices.
On Friday, fourth-quarter U.S. economic growth was revised down to a 2.2 percent annual pace from 2.6 percent.
Elsewhere, India will introduce gold deposit accounts to utilize the 20,000 tons available within the country and launch a sovereign gold bond, but it kept the import duty at a record 10 percent in a setback for jewelers.