Gold prices eased on Monday as a softening of other assets such as stocks and crude oil indicated weaker appetite for fresh investment, but a retreat in the dollar prevented a sharper fall.
Spot gold was down 0.2 percent at $1,664.79 an ounce at 07:28 a.m. E.D.T. (1128 GMT), while gold futures for April delivery were down $5.60 an ounce at $1,666.30.
European stocks surrendered gains to turn lower on Monday as a rally sparked by surprisingly strong Chinese manufacturing data ran out of steam. Oil prices also slipped, suggesting little interest in assets seen as higher risk.
Recently prices have been driven strongly by speculative sentiment, and it is not surprising to see those pullbacks, Commerzbank analyst Eugen Weinberg said. But in the longer term, we still stay very confident that the upward trend in gold is still very constructive.
We will continue to see buying on the dips, although on the demand side we had a couple of setbacks, especially from India with the strikes, he added. But I think in the longer term, gold will perform even more like a currency and be less dependent on the jewelery sector.
Jewelers in major gold consumer India remained on strike on Monday for a 17th day after the finance minister proposed to double the import duty on gold, an excise duty on unbranded jewelery and a tax on transactions worth more than 200,000 rupees.
Gold prices rose 6.6 percent in the first quarter after comments from the Federal Reserve reassured investors that U.S. interest rates would remain low for an extended period of time, keeping the opportunity cost of holding gold at rock bottom.
Weakness in the dollar, which makes assets priced in dollars cheaper for other currency holders, also helped lift the precious metal. The dollar remained near a one-month low against a basket of six major currencies on Monday.
Traders will be watching U.S. manufacturing and construction spending data due at 1400 GMT for fresh clues as to the health of the world's biggest economy, which could have a major impact on gold prices.
U.S. growth is set to slow in (the second quarter). A cyclical slowdown is typically supportive to gold prices for a host of reasons, including a reduction in the upside to prices of cyclical asset classes, Bank of America Merrill Lynch said in a report.
The impact of a renewed slowdown in U.S. growth on gold prices may be even more pronounced this time around because discussions around QE3 will in all likelihood re-emerge, as the Fed may not stand by idle as activity slows, it added.
U.S. Commodity Futures Trading Commission figures showed on Friday that money managers, including hedge funds and other large speculators, raised their bullish bets in gold for the first time in four weeks last week.
Speculators in silver also cut their bullish exposure, reducing their net length by 3,284 lots to 17,031 contracts - their lowest level since the week of January 29, when they were long on 16,034 lots.
Spot silver was up 0.6 percent at $32.39 an ounce. The grey metal broke a three-quarter losing streak in the first three months of 2012, rising 16 percent on gold's coat-tails.
Spot platinum was down 0.6 percent at $1,635.99 an ounce, while spot palladium was up 1.3 percent at $656.47 an ounce.
U.S. auto sales are expected to continue at a strong pace in March, capping the best quarter in four years for new vehicle purchases as the overall U.S. economy improved and new car buyers found easier financing.
Automakers are the biggest consumers of platinum and palladium, which are widely used in autocatalysts.