Light buying by investors seeing US dollar-denominated gold as cheap enabled spot metal to rise from a 7-week low late on Friday though by the start of Asian trading doubts had surfaced over how much further upside bullion could muster in the face of unfavourable currency movements.
"Gold is a currency play and that suggests to everyone that the price will go down," Australia & New Zealand commodities analyst Andrew Harrington said.
Spot gold, which has tumbled more than 3 percent in the last week was steady at $456.75/$457.50 an ounce, trading in a narrow band of less than $1.
A rising dollar puts pressure on gold, as buyers in foreign currencies are encouraged to sell at a profit.
An ounce of gold bought at the start of January costing 323 euros could be sold at a 20 percent profit in the current spot market for 386 euros.
This compares with an overall 4 percent rise in US dollar gold. "With a rising dollar, gold's upside is limited," said a dealer. The dollar, which rose to an 18-year high against the euro on Friday, was buying about $1.1801 versus $1.1823 late on Friday.
But Asian currencies were also falling under the weight of the dollar. The dollar matched a 2-year high against the yen on Monday, which currency traders linked to Friday's soft US jobs data that failed to dent expectations that the US currency's interest rate advantage would keep widening.
The greenback bought 118.27 yen versus 118.35 yen on Friday. The Taiwan dollar was weaker at T$33.712 versus T$33.657 on Friday, while the South Korean won was quoted at 1,050.9 per dollar, down from Friday's domestic close of 1,047.9.
"With the dollar getting stronger, all this talk of gold going to $500 is starting to sound like a longshot," said Harrington. Gold miners this year have widely predicted bullion rising to $500 an ounce or more soon the highest in more than two decades on the back of growing consumption, less hedging at forward fixed prices and restraint among the world's central banks to sell much of the 32,000 tonnes or so held in reserves.
Consumption in India, the world's largest importer, is expected to surge nearly 33 percent in 2005 to 850 tonnes, according to industry group the World Gold Council.
"That's all well and good and is supportive, but the story in gold is the US dollar," Harrington said. Silver was down 2 cents at $7.50/$7.52 an ounce. Platinum was $3 lowers at $926/$930 an ounce, while palladium rose $3 to $223/$227 an ounce.