Gold prices inched up on Monday as the dollar weakened, prompting investors to buy bullion back after it lost 2% late last week when optimism about the economy reduced its safe-haven appeal.
Spot gold earlier fell to its lowest since May 28 at $951,50 per ounce, but it then headed higher and was up 0,3% at $958,35 per ounce as of 0519 GMT, compared with New York's notional close of $955,30 on Friday.
US gold futures for August delivery trimmed earlier losses of about 0,7% and were down 0,3% at $959,40 an ounce, compared with $962.60 an ounce on the COMEX division of the New York Mercantile Exchange.
"Gold is becoming a bit top-heavy as investors find fewer reasons to buy when stocks are rising and the dollar is rebounding," said Tetsu Emori, a fund manager at Tokyo-based Astmax Co.
"Funds including trend-following CTAs were buying gold as the market was rallying, and if the market becomes top-heavy, they will start to look for the moment to cut losses," he said.
Bullion came under pressure on Friday as the dollar posted its largest one-day gain against a basket of currencies in more than five months after US jobs data raised hopes for an economic recovery.
Still, rises in the dollar can also benefit gold if they are prompted by investor risk aversion.
Gold approached the $1 000 threshold last week, bolstered by talk of systemic risk in the dollar, including worries about rising inflation due to heavy US government spending and a ballooning budget deficit.
Gold often benefits as a hedge against falls in the value of dollar-denominated assets.
Emori said the dollar's recent rise was likely to be a short-term unwinding of short positions in the greenback and long positions in other currencies, and that the dollar would likely resume its weakening trend as risk appetite returns along with improving sentiment towards the economy.
But if dollar short-covering continues and pushes gold prices down to the levels where funds had begun buying in the recent rally, gold could extend its losses as those funds would have to cut losses, Emori said.
With gold losing its momentum for a test of $1 000, investment in gold-backed exchange-traded funds also slowed.
The world's largest gold-backed fund, the SPDR Gold Trust, said its holdings totalled 1 132,15 tonnes as of June 5, down 0,35 t from the previous day.
US stocks ended mixed on Friday as investors paused to consider conflicting signals in monthly US jobs data, which showed employers cut 345 000 jobs in May, far less than economists had forecast, after cutting 504 000 jobs in April. But the jobless rate rose to 9,4%, the highest since July 1983, from 8,9% in April.
Speculators boosted their holdings of US gold futures, with noncommercial investors net long on 187 340 contracts of gold futures in the week to June 2, compared with a net long 177 308 contracts in the week to May 26.
