Gold turned weaker on technical selling on Monday, after the metal initially rose as a lower dollar and lingering worries about an European debt crisis helped recoup some lost ground from a two-month low last week.
Gold struggles to break above strong technical headwinds, after analysts said a new downward trend was formed when prices broke below its 100-day average last week and remained under its 50-day average, a level bullion had held since its breakout in late August last year.
A dearth of safe-haven demand in recent weeks as concerns over euro zone sovereign debt and the U.S. economic outlook receded meant gold struggled to make fresh headway after hitting a record $1,430.95 an ounce in December.
We have got a pretty robust macro backdrop despite some potential for European sovereign issues, said RBS analyst Daniel Major.
The safe-haven argument, which was the dominant theme last year, is unlikely to be repeated this year, he said.
Spot gold fell 0.5 percent to $1,335.85 an ounce at 3:10 p.m. EST. U.S. gold futures for February delivery settled up $3.50 an ounce at $1,344.50.
The precious metal fell about 1.5 percent last week to a two-month low, and that called into question the metal's lengthy bull run as a spate of encouraging economic data including U.S. job data and German business sentiment boosted interest in assets seen as higher risk at gold's expense.
Gold's loss was limited on Monday after the dollar slipped for a fifth straight session against the euro, hitting a two-month low as expectations of higher euro zone interest rates sparked traders to push the single currency above important technical levels.
Analysts said bullion still benefited from concern over the stability of the euro zone, which was highlighted by political uncertainty in Ireland, after the country's junior coalition party withdrew from Prime Minister Brian Cowen's government.
Silver fell 1.9 percent to $26.94 an ounce. Holdings of the world's largest silver ETF, the iShares Silver Trust, fell by 181 tonnes on Friday, their biggest one-day outflow since late November.
The gold-to-silver ratio -- the number of ounces of silver needed to buy an ounce of gold -- rose back toward 50, its highest level since late November, as some traders believed gold is becoming increasingly expensive relative to silver.
Monday's turnover was mixed as U.S. COMEX gold was 25 percent above its 30-day average, but silver futures volumes were 35 percent below their average.
Gold exchange-traded funds saw outflows as investors cashed in some of last year's gains. While that trend reversed late last week as prices fell, analysts said the sustainability of this buying is questionable.
Holdings of the largest gold-backed ETF, the SPDR Gold Trust, rose by more than 20 tonnes on Friday. However, they are still down some 9 tonnes this year.
SPECS LONGS FALLING
Trade data by the Commodity Futures Trading Commission (CFTC) showed investment interest in the U.S. futures market has waned of late.
The latest CFTC's Commitments of Traders report showed a third successive drop in the net speculative long or bullish position in gold, bringing the net noncommercial long to its lowest since the week of July 26, 2009.
The CFTC data also showed the silver speculative position rose last week by about 1.3 percent, partially offsetting the previous week's fall, while the platinum net noncommercial position staged its largest weekly rise in at least four years.
Platinum slipped 0.7 percent to $1,811 an ounce, while palladium dropped 1.4 percent to $808.72.