Gold prices were steady on Monday, but could soften as upbeat Chinese economic data helped dissipate fears of a worsening global economy and ease safe-haven demand.
Industrial production in China ramped up and money growth exceeded expectations in August, showing buoyant economic growth despite government efforts to clamp down on bank lending and property speculation.
The inflation reading, though at a 22-month peak, is unlikely to trigger an immediate interest rate hike, analysts said, as higher food costs were expected to be transitory after a spell of bad weather hit the country in the summer.
"After some positive data from China, the economic prospect brightens and fear of a double-dip fades, we may see gold retreat a bit today due to profit-taking and easing of safety-haven need," said Ong Yi Ling, an analyst at Philip Futures.
Analysts said the support level for gold was at its 20-day moving average, at about $1,240. Gold could retrace further, if a drop below the level is sustained, Ong added.
Spot gold was little changed at $1,245.80 an ounce, after having hit a one-week low of $1,236.55 last Friday.
U.S. gold futures for December delivery was up less than a dollar at $1,247.4.
Holdings in the world's largest gold-backed exchange-traded fund, SPDR Gold Trust were unchanged at 1,293.531 tonnes.
The physical market was quiet, with Indonesia on holiday, while buying elsewhere was light, as buyers held off after prices rebounded, dealers said.
"If prices drop below $1,240, people will start to buy. But once it's below that level, people will look at the next support level at $1,220 to $1,225," said a Singapore-based dealer. "They will be buying at a slower pace."
Spot gold could have started a bearish reversal at the Sept 8 high of $1,262.25 per ounce and could fall towards $1,230 as a five-wave cycle is observed on its hourly chart, Wang Tao, a Reuters market analyst, says.
The euro surged on Monday as positive market sentiment following upbeat Chinese data and a lack of surprises from new banking rules tripped automatic buy orders and sent it up nearly 1 percent on the dollar.
Analysts said even though gold might face some pressure in the near term, the upward trend was intact, looking forward.
"Physical demand will enjoy a seasonal lift from India and China among other countries," said Li Ning, an analyst at Shanghai CIFCO Futures.
"In addition, there are still concerns on the debt issue in Europe. These will provide effective support for gold."
