A weakening dollar combined with bargain hunting, short covering and Chinese physical demand Monday to lift gold prices modestly. The steady gains so far this year, however, leave the metal shy of its critical 200-day moving average in the $1,630 area, a target that if reached could spark a return to levels seen last year. Although Indian demand was weak, Barclays Capital said in a note, "demand from China remains healthy ahead of the Lunar holidays, volumes traded on the Shanghai Gold Exchange have started the year on a positive note, exceeding the lower volumes traded in November and early December." The dollar spent the day declining in Asian and European trading, which offered support for gold. The dollar index, which gauges the strength of the greenback against a basket of six major currencies, including the euro, was down 0.33 percent to 81.32.

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