Gold prices rose on Monday as the dollar eased, but gains are expected to be muted ahead of inflation data from the United States later this week that could mean U.S. interest rates rise faster than expected.
Spot gold was up 0.6 percent at $1,324.16 an ounce by 3:22 p.m. EST. It has fallen more than 3 percent since hitting a 17-month peak at $1,366.07 in January. U.S. gold futures settled up 0.81 percent at $1,326.30.
Worries about inflation in the United States surfaced after data this month showed jobs growth surged and wages rose, bolstering expectations that the U.S. labor market would hit full employment this year.
U.S. inflation data for January is due on Wednesday and the U.S. Federal Reserve next meets on March 20-21. "The story is and will be about U.S. monetary policy and dollar direction," Julius Baer analyst Carsten Menke said. "U.S. growth is more solid, wages are rising and the worry is the Fed will be forced into more rate hikes than currently expected."
The dollar eased against a basket of six major currencies as a bounce in equity markets ended a strong run for the greenback, used by investors as a safe place to park assets in times of financial market volatility.
A weak greenback makes dollar-denominated gold cheaper for holders of other currencies, potentially boosting demand.
World shares rallied on Monday in a broad advance that brushed off fresh rises in global bond yields that have been driven by inflation fears as investors shifted asset allocations after the worst week in global markets in the past two years.
"In the short term, I would expect gold to react more directly to the fortunes of the U.S. dollar, customarily its strongest driver," said Tai Wong, head of base and precious metals trading at BMO Capital Markets in New York.
"COMEX gold saw significant long liquidation according to CFTC data just through last Tuesday and gold bulls are reinstating long positions as markets have apparently normalized."
Hedge funds and money managers slashed their net long position in COMEX gold for the first time in eight weeks in the week to Feb. 6, and cut it in silver, U.S. Commodity Futures Trading Commission data showed on Friday.