Gold prices retreated to hover near $US1080 on Monday after posting a third straight week of declines as investors remained wary of gains in the US dollar which weaken bullion's appeal as a currency hedge.
A US proposal to limit bank risks continued to weigh on investor sentiment.
The stronger dollar hit commodities across the board, with the Reuters-Jefferies CRB index, a commodities bellwether that tracks prices across 19 futures markets, ending January down about 6 per cent. That was its worst loss since November 2008, when it dropped almost 10 per cent.
A stronger US dollar makes commodities denominated in the currency more expensive for holders of other currencies.
Gold looked vulnerable, but a healthy appetite from physical buyers was seen likely to keep support solid around $US1074 an ounce.
"I think physical buying can offset fund selling, with $US1074 offering a very strong support," said Dick Poon, a manager of precious metals at Heraeus in Hong Kong.
"Physical buying in Asia is strong, with seasonal demand before the Chinese Lunar New Year," he said, adding that such demand was expected to keep gold firm in the first quarter.
As expectations for higher interest rates were likely to grow later in 2010, the dollar's strength could become more prominent and weigh on gold in the second half of the year, Poon said.
Spot gold was little changed at $US1078.60 per ounce in afternoon trade compared to New York's notional close of $US1079.20.
Spot gold marked a low of $US1073.75 last Thursday, its weakest since November 3, hit by a stronger dollar and uncertainty over how President Barack Obama's proposal to limit risk taking by US banks could impact gold trading.
US gold futures for April delivery inched down 0.4 per cent to $US1079.30, compared to $US1083.80 an ounce on the COMEX division of NYMEX.
