Gold bars and granules. File photo: Reuters

London - Gold steadied on Monday off an earlier one-month high, with a rally sparked by last week's weak US jobs data running out of steam as analysts predicted the Federal Reserve will continue tapering monetary stimulus.

Prices earlier broke above tough chart resistance to hit $1,254.05, their highest since December 12, as some interpreted Friday's reading of the jobs market as strengthening the case for the Fed to keep interest rates low for longer.

Gold later eased as the market digested the report, and as physical demand in China, now the world's biggest bullion consumer, dropped off after the price rally.

Spot gold was at $1,246.20 an ounce at 12:10 SA time, little changed from Friday, while US gold futures for February delivery were down $1.10 an ounce at $1,245.80.

“The data came as a shock, but it seemed out of kilter with the readings we've seen in previous months,” Jonathan Butler, an analyst at Mitsubishi Corp, said.

“Gold's response probably reflected a lack of conviction that this really represents a new trend.”

The macro story is still very much in place, he said.

“We expect further tapering this year, and the Fed minutes we saw last week suggested several members believe quantitative easing will be wound up by the end of 2014,” Butler added.

“We're fairly conservative for the remainder of the year, given that the pressure from less accommodative monetary policy will encourage some further shifting into equities, and will leave gold lacking its shine.”

The Fed's quantitative easing was a key factor driving gold prices to record highs in recent years.

It kept interest rates at rock bottom, cutting the opportunity cost of holding gold, while stoking inflation fears.

Expectations that the scheme was coming to an end knocked prices down 28 percent last year, their biggest annual fall in 32 years.



In 2014 so far, gold has been among the best-performing metals, with strong Chinese buying ahead of the Lunar New Year and last week's surprisingly weak jobs data helping drive prices 3.4 percent higher.

Strong demand in China has eased, however.

On the Shanghai Gold Exchange, premiums for 99.99 percent purity gold fell to about $17 from Friday's $18 as the price gain deterred some buyers.

Gold production in China, also the world's top producer of bullion, rose 7 percent from a year earlier to reach 392.141 tonnes in the first 11 months of 2013, data from the China Gold Association showed on Monday.

In India, premiums eased a touch in the physical market ahead of a harvest festival.

Bachhraj Bamalwa, director of the All India Gems and Jewellery Trade Federation, a trade body, said premiums were at $120 an ounce on London prices as against $130 an ounce last week.

“Premiums have come down a bit as there is no demand,” he said.

Data released on Friday showed that hedge funds and money managers raised their net long positions in gold futures and options for a second straight week.

Among other precious metals, silver was down 0.4 percent at $20.03 an ounce, while spot platinum fell 0.4 percent to $1,427.50 an ounce and spot palladium lost 0.4 percent at $736.97 an ounce.

Platinum earlier hit a two-month high at $1,438.24. - Reuters