Gold held around two-week lows on Monday, supported in part by benign inflation data from China and a modest decline in the dollar, although uncertainty over the outlook for US interest rates in particular tempered investor appetite for the metal.
Friday's US monthly employment report showed 80,000 workers were added to non-farm payrolls in June, close enough to expectations that investors had little conviction for aggressive bets one way or another on a third round of bond-buying.
Economists polled by Reuters now attach a 70 percent chance to the Federal Reserve's embarking on another multi-billion dollar round of quantitative easing or buying government bonds to lower borrowing costs. That estimate has increased from around 50 percent in late June.
Gold lost about 1 percent last week, under pressure from the persistent weakness in the euro, which has been driven to two-year lows by the ongoing debt crisis.
Spot gold was flat on the day at $1,582.90 an ounce by 13:55 SA time, having lost nearly 1 percent so far in July. Most active COMEX gold futures for August delivery were up 0.25 percent at $1,582.40.
Supporting gold, Chinese data for June showed the inflation rate undershot expectations, signalling prospects for more of a policy response by the central bank to stave off a slowdown.
Last week the People's Bank of China unexpectedly cut benchmark interest rates for the second time in a month, thereby creating a more favourable environment for investment in gold, at least in theory.
“The main thing that says to me is when inflation is poor, it encourages China to cut rates and stimulate the economy and I see that as good news for risk appetite,” Daniel Smith, an analyst with Standard Chartered, said.
“Gold carries the idea that it's a safe-haven, but in reality when everything else moves up, when liquidity improves, it tends to lift everything at the same time.”
China's annual consumer inflation eased more than expected to 2.2 percent in June from 3.0 percent in May, creating more room for the central bank to ease policy to bolster economic growth.
The dollar eased by about 0.1 percent on the day against a basket of major currencies, thereby offering a degree of support to gold, which tends to rise in the face of dollar weakness as it becomes cheaper for non-US investors.
Demand for gold has retreated sharply over the course of 2012. Inflows of metal into exchange-traded funds have slowed to an average monthly pace of 250,000 ounces a month this year, compared with an average pace of 1.2 million ounces in 2011.
Data from the Commodity Futures Trading Commission last week showed speculators cut their holdings of gold futures by the largest amount in three months last week, by nearly 13.8 million ounces, which brought the net non-commercial futures position to a one-month low.
“The choppy price reaction following the employment numbers did not do gold any favours. It highlighted the yellow metal's ability to swing quite sharply, a quality that many participants find unattractive,” UBS analyst Edel Tully said.
“Some investors decided that the risks to holding gold in such an environment are too high, particularly with light liquidity feeding the likelihood for sharp knee-jerk reactions.”
In the latest from the euro zone, EU finance ministers were likely to grant Spain an extra year to reach a deficit target of 3 percent, according to three EU diplomats ahead of a meeting of ministers at which Spain's fiscal position would be discussed.
Euro-priced gold was flat on the day at 1,287.90 euros ($1,600) an ounce, having gained 2 percent so far this month.
In other precious metals, silver was up 0.3 percent at $27.13 an ounce, defying another decline in speculative investment.
The CFTC data last week showed the net-noncommercial silver futures position staged its ninth fall in 12 weeks last week, dropping by nearly 19.5 million ounces and hitting its lowest level since April 2003.
Platinum eased by 0.2 percent to $1,435.75 an ounce, while palladium rose by 1.0 percent to $578.75 an ounce. - Reuters