Gold prices eased on Monday as caution ahead of this week's Federal Reserve testimony on monetary policy pressured the euro and stock markets, with a weak start to earnings season and concerns over euro zone debt also keeping investors on edge. The precious metal slipped towards $1,580 an ounce, surrendering the gains it made on Friday when it put in its best one-day performance in more than a week. Gold has been sensitive to the Fed's stance on monetary stimulus this year and particularly to the impact of such a move on the dollar, which has consistently trumped bullion as the more-sought-for destination for safety amid the festering euro zone debt crisis that has sapped market liquidity. "Any sign of an inclination towards quantitative easing would encourage gold, though we think the chances of the QE3 in July are very small but the Fed may launch it in the next couple of months," said Chen Min, an analyst at Jinrui Futures in the southern Chinese city of Shenzhen. After hitting a two-year high against a basket of currencies last week, the dollar [.DXY 83.32 -0.03 (-0.03%) ] might come under some pressure this week and help underpin the sentiment in gold, Chen said. Spot gold [XAU= 1589.01 -1.02 (-0.06%) ] was down 0.3 percent at $1,585.44 an ounce on Monday morning, after rallying 1 percent on Friday. U.S. gold futures [GCCV1 1590.10 -1.90 (-0.12%) ] for August delivery were down $6.50 an ounce at $1,585.50. Technical analysis, however, suggested spot gold could retrace to $1,570 an ounce during the day, said Reuters market analyst Wang Tao. The correlation between the dollar and gold stood at -0.68, steady from Friday and the strongest inverse correlation in nearly three months. A reading of -1 suggests a perfect inverse correlation in which one asset rises and the other drops. A move by the Fed to launch a third round of quantitative easing (QE3) would weigh on the dollar and support bullion, but the U.S. central bank is not expected to do so anytime soon. The Fed Chairman Ben Bernanke will present his semi-annual monetary policy report on Tuesday and Wednesday. "Gold has been pulled and pushed on the back of expectations of further quantitative easing and remains under pressure from the strong US dollar," said Barclays Capital analysts in a research note. "Over the coming weeks, the resilience of ETP (exchange-traded products) holdings, coupled with the physical market ahead of the seasonally strong period for demand in India, will be key in determining the solidity of the price floor for gold." India, one of the world's top two gold consumers, saw its inflation ease to 7.25 percent on the year in June. Holdings of gold-backed exchange-traded funds stood at 70.5 million ounces, down about half a percent from a peak of 70.89 million ounces in March. Hedge funds and money managers cut their net long position in U.S. gold futures and options by nearly 20 percent in the week to July 10, wiping out gains from the previous week. In Europe, solid domestic demand helped the Italian Treasury sell 5.25 billion euros in bonds on Friday with lower yields than a month ago, but a rise in 10-year yields highlighted concerns that the country may still fall victim to the euro zone debt crisis.

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