Gold edged up on Monday, clawing back some lost ground after posting its biggest one-day loss in two months in the previous session as a softer tone to the dollar took some pressure off the metal.
Gold fell 1.2 percent on Friday after stronger than expected U.S. payrolls data shored up expectations that a pick-up in inflation will spur further U.S. interest rate hikes this year, boosting the U.S. currency, in which it is priced.
Having rallied in the wake of the data, the dollar rose 0.3 percent against the euro on Monday.
"This morning the greenback is weakening again, and this is supporting the recovery of the (gold) price after Friday's fall, which was mostly due to growing expectations for a hawkish Fed
in 2018," ActivTrades' chief analyst Carlo Alberto de Casa said.
Stock markets were routed around the globe on Monday and bond yields rose as resurgent U.S. inflation raised the possibility central banks would tighten policy more aggressively than had been expected.
While gold is often considered an inflation hedge, Julius Baer said in a note, the fact that price pressures were being driven by confidence about growth rather than dollar weakness and rising oil prices meant it was failing to react positively.
"'Good' inflation is a consequence of an improved growth backdrop, leading to an increase in wages that pushes up prices and services," it said.
"As it should be accompanied by rising interest rates, the inflation uncertainty appears limited.
Hence, gold's drop on Friday."
Futures markets reacted after the jobs data by pricing in the risk of three, or even more, rate rises from the Federal Reserve this year.
As well as their impact on the currency markets, rising interest rates weigh on gold in their own right, as they increase the opportunity cost of holding non-yielding bullion.
Meanwhile, hedge funds and money managers raised their net long position in COMEX gold contracts in the week to Jan. 30 to their highest level since late-September, U.S. Commodity Futures Trading Commission (CFTC) data showed on Friday.
Spot silver was up 0.95 percent at $16.772 an ounce, having earlier matched the previous session's five-week low of $16.54. The metal fell 3.7 percent on Friday in its biggest one-day decline since Dec. 2016.