Gold held near $1,660 an ounce in Europe on Monday, taking a breather after recording its first weekly rise in four last week as weakness in the euro weighed on prices and other commodities like crude oil eased a touch.
Spot gold was at $1,660.79 an ounce at 1119 GMT against $1,662.14 late on Friday, while U.S. gold futures for April delivery were down $1.70 an ounce at $1,660.70.
Prices edged up 0.2 percent last week, their first weekly increase since late February, benefiting from a sharp drop in the dollar and a rise in crude oil prices.
If the dollar is going to strengthen over the next couple of days, gold should see more downward pressure, said Standard Bank analyst Walter de Wet.
(But) looking past the next couple of weeks, I think the rally is not over, he added. In real terms interest rates remain negative, and we expect them to remain negative for at least another two years.
And even if the Fed doesn't expand its balance sheet, which has put downward pressure on gold in recent weeks, we still think that liquidity will continue to grow.
The euro came under pressure versus the dollar on Monday despite a positive reading of German business sentiment, as the numbers proved insufficient to ease investor concerns about the troubles facing the euro zone economy.
Concerns over the bloc's debt crisis were a key factor driving gold to record highs last year, but it has since re-established its usual inverse relationship with the dollar as the U.S. unit takes precedence as investors' haven of choice.
Bad news from the euro zone, which weighs on the euro and boosts the dollar, therefore now tends to be negative for gold.
Safe-haven German bund futures rose and European shares also declined, reflecting softer appetite for assets seen as higher risk, like stocks and other commodities. Oil prices softened after rallying on Friday.
Data from the U.S. Commodity Futures Trading Commission on Friday showed money managers in gold futures and options cut their bullish bets for a third straight week to the weakest level in two months.
Declining a hefty 3.1 million ounces, the Comex gold book now sits at a relatively modest 17.58 million ounces, bringing positioning to its lowest level since the week of January 10 and some 53.1 percent of the all-time high, said UBS in a note.
In just three weeks, spec net longs have collapsed by 10 million ounces. So in theory, from a positioning perspective, gold's spec baggage looks relatively light; much like it did in early January which suggests some upside price direction is possible. But gold is lacking momentum, sentiment is weak and the technical picture is challenging.
Volume data from the Shanghai Gold Exchange suggests demand from China, the world's second largest consumer of the precious metal, is soft, the bank added.
Meanwhile, a Reuters poll suggested India's decision to double gold import duty to four percent could cut imports to the number one global consumer by a third in 2012, to their lowest level in two years.
Chinese and Indian demand has a huge impact on gold prices.
Those two countries together make up about 42 percent of total demand, compared to 23 percent of total demand five or six years ago, Nick Holland, chief executive of miner Gold Fields, told the Reuters mining summit on Monday.
Those are two economies that are likely to grow at a significant pace, certainly relative to the West, he added. They have a strong affinity for gold, and they also have an increasing number of the population who are being urbanized. Of the extra income they get, some will find its way into gold.
I believe that is a fairly good underpin for the gold price.
Among other precious metals, silver was flat at $32.21 an ounce. The gold/silver ratio, or the number of silver ounces needed to buy an ounce of gold, eased back to 51.6 from 52.1 on Friday.
Spot platinum was up 0.6 percent at $1,630.25 an ounce, while spot palladium was up 1 percent at $659.97 an ounce.