Gold prices rose and moved away from four-week lows on Monday as the US dollar reversed course and dipped against a basket of major currencies, paring gains made after upbeat US economic data late last week.
As the greenback fell, spot gold gained steam and rose 1 per cent to $US1125 per ounce, moving away from four-week lows of $US113.85 hit on Friday.
Spot gold is still trading more than $US100 below its record high $US1226.10 reached on December 3, and up about 27 per cent from the start of the year.
Volume remained light with Christmas and year-end holidays approaching, and the market was seen likely to face more liquidations from investors looking to close or lighten positions.
The Federal Reserve will hold a policy-setting meeting on Tuesday and Wednesday and is expected to repeat a pledge to keep interest rates extraordinarily low for an extended period even as it acknowledges signs of economic healing.
Expectations for US interest rates to remain low for a long period were one key factor weighing on the dollar and supporting gold, as excess money found its way into the yellow metal as a means to protect against a devaluing currency.
But traders and analysts said after gold reached near $US1300 per ounce earlier this month, up nearly 40 per cent from the start of the year, that investors had become wary of the market's rapid pace of rises and elevated price levels.
"Gold is up in a thin market today but market direction is till unclear, with more bias to the downside under current conditions than the upside," said Hiroyuki Kikukawa, general manager in the market research department at Nihon Unicom.
"As gold had raced up ahead of other commodities, it is also likely the first to undergo a correction. The market has not rebounded strongly and funds' long positions have not been liquidated fully. Gold is expected to face corrective pre-Christmas selling this week," Kikukawa said.
He said spot gold was likely to be supported around $US1070 and capped near $US1170 in the near term.
