(REUTERS) -- Gold fell on Monday, under pressure from a softer euro and from dwindling expectations for the Federal Reserve to signal the need for more measures to keep U.S. rates low, although longer-term investors took their bullion holdings to a fresh record.
Spot gold fell 0.3 percent to $1,702.45 an ounce by 1535 GMT, having gained more than 2 percent since touching intraday lows below $1,680 on Friday after the U.S. employment report showed far more jobs were created than initially thought in the last three months.
The Fed meets this week to discuss the likely course of monetary policy, and while the central bank has committed to leaving rates near zero until at least late 2014, a robust monthly employment report on Friday has prompted economists and markets to anticipate less in the way of additional support for the economy.
This has also pushed the euro to its lowest in a month against the dollar, which further undermines gold as it becomes more profitable for euro-based investors to take profit on their bullion holdings.
The rise in the gold price so far this quarter has been trimmed to 9.1 percent, from around 14 percent before Fed Chairman Ben Bernanke quashed expectations for a third round of quantitative easing in a speech on February 29.
The market had maybe overly anticipated QE3 into the gold price, it had factored in too much and it maybe what we saw last week was something of that being extracted back out of the price - diminished expectations of QE3, James Steel, an analyst at HSBC said.
Economists at most of the primary dealers - the large financial institutions that do business directly with the Fed - still say the central bank will undertake another large stimulus program. However, they now expect the scale of this intended economic support to be smaller than they thought a month ago.
The median of forecasts from 12 primary dealers is for a new round of quantitative easing to total $525 billion, compared with 11 dealers' median forecast for $600 billion in stimulus, in a similar poll conducted in early February.
The euro, which held around $1.311 to the dollar, is expected to struggle in the coming weeks as relief over Greece's successful restructuring of its debt gives way to concerns over the potential for the crisis to spread and erode growth across the single currency bloc.
We think fundamentally gold should in any case be closer to $1,650 an ounce. We think the bias must lie to the downside, Standard Bank analyst Walter de Wet said of near-term price prospects.
We have not necessarily turned too bearish in gold yet, because structurally, there is still a case to be made for a higher gold price, he said, adding that consumer demand would emerge with any large price drops, while a key driver for gold over the coming 12 months would be low real U.S. interest rates, which factor in inflation.
The lower the real rate of interest, the more of an incentive it provides for gold investment in that it tempers gains in the dollar and lessens the premium that investors forfeit by holding gold over other yield- or dividend-bearing assets such as stocks or bonds.
Speculators cut their holdings of gold futures last week by the largest amount since early August, according to data from the Commodity Futures Trading Commission (CFTC).
The CFTC report on Friday, which captures the change in holdings in the week to March 6, showed speculators cut their futures holdings by more than 3 million ounces to 16.526 million ounces.
Flows of metal into exchange-traded products, which can serve as a barometer of demand from investors with a longer-term view on the market, rose for a ninth week in a row last week, up 71,845 ounces to 70.759 million ounces, bringing total net inflows so far this month to nearly 320,000 ounces.
Gold had been boosted by investor interest but (had) sidelined the mixed physical market. While some physical buying has emerged upon the sharp price corrections, the cushion for prices has not proved to be solid thus far, Suki Cooper, an analyst at Barclays Capital, said.
However, it bodes well for prices that ETP holdings have remained stable at record highs. In our view, in the near term, the macro news will set the highs for prices and the physical market the floor, but the longer-term picture remains structurally supportive for gold prices, she added.
In other precious metals, silver fell by 1.0 percent to $33.82 an ounce, while platinum rose 1.0 percent on the day to $1,691.74 an ounce and palladium rose 1.7 percent to $703.47 an ounce.