Gold prices dipped on Monday as the previous session's upbeat U.S. payrolls data sparked a fresh rally in equities, shoring up expectations that the U.S. Federal Reserve would press ahead with further interest rate rises this year.
World stocks hit a two-week high on Monday after Friday's strong jobs data helped offset investors' concerns about the potential for a trade war between the United States and other major economies.
"Investors are now playing defense, so gold is sitting on the bench today," said Rob Lutts, chief investment officer of Cabot Wealth Management.
Gold could see support around the mid-$1,200s, he added, noting bullion bounced off $1,239 an ounce in December then $1,275 in July.
Money market traders stuck to bets that the Fed would raise interest rates three times this year after data released on Friday showed U.S. job growth recorded its biggest increase in more than 1-1/2 years in February.
Gold is highly sensitive to rising rates, which lift the opportunity cost of holding non-yielding bullion, while boosting the dollar, in which it is priced. "Certainly higher interest rates are more competition to gold, however when inflation is a reason for higher interest rates, all bets are off and gold benefits," Lutts said.
However, whether inflation will reignite and when remains elusive, traders have said. U.S. Treasury yields advanced after the jobs data, while stock markets rallied as the numbers sparked a surge in risk appetite. That weighed on the dollar on Monday, though the impact of the softer U.S. currency on gold was muted.
Gold slipped to its lowest in a week on Friday after the payrolls report, having come under pressure earlier in the week after failing to break through the $1,340 an ounce level for a second time in two weeks.
"We are now getting within distance of the FOMC (Federal Open Market Committee) meeting next week, with the rate hike being expected to be executed," Saxo Bank's head of commodity research Ole Hansen said. "We've seen in the past that gold has been struggling ahead of these announcements, so I think we're just being sucked into the slipstream of that meeting."