Gold was little changed on Monday, trading close to a six-week low and headed for its first monthly decline this year as growing optimism about the U.S. economy eroded investment interest and encouraged appetite for riskier assets.
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Bullion prices have lost around $100 an ounce in the last 10 trading sessions from a six-month high hit in mid-March, on declining geopolitical tensions, strong U.S. economic releases and comments by Federal Reserve Chair Janet Yellen that interest rates could rise in the first half of 2015.
Spot gold was up 0.1 percent at $1,294.65 an ounce by 1207 GMT, having touched $1,285.34, its lowest level since Feb. 12, on Friday. It was down nearly 3 percent for the month.
Gold futures for April delivery rose $1.40 to $1,295.20 an ounce.
The dollar was down 0.2 percent against a basket of currencies, while 10-year U.S. Treasury yields rose above 2.7 percent, underpinned by expectations that the Federal Reserve will continue to taper its massive stimulus programme and pave the way for an eventual rate hike.
Data showed March euro zone inflation fell to its lowest since November 2009.
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"One of the things the market will be focusing on today is repercussion of the European inflation number, which may ...allow Draghi to implement some limited quantitative easing and that will help cap the euro on the upside, strengthen the dollar and weigh on gold prices," Natixis analyst Nic Brown said.
"But behind this there is a creeping optimism that things are getting better in the U.S., that we are beyond the worst weather-affected data and we would expect that the Fed just continues tapering and starts to look at when they are going to start hiking rates."
Federal Reserve Chair Janet Yellen will speak in Chicago later on Monday and the focus is on whether she maintains her stance on rates, which the market has interpreted as hawkish.
Low interest rates, which cut the opportunity cost of holding non-yielding bullion above other assets, had been an important factor driving gold higher in recent years.
Investors will also have a chance to begin gauging whether the frigid winter was really the key cause behind the string of soft U.S. data seen earlier this year, with the March Chicago PMI due later in the session. The main focus remains the U.S. nonfarm payrolls data on Friday.
JAPAN BRIGHT SPOT
Physical demand in Asia has been quiet due to recent volatility in gold prices, which have edged lower for two straight weeks.
Only Japan has seen some pick-up in demand as consumers brought forward their purchases ahead of a sales tax hike from April 1.
"This could be part of the reason we have seen such large short covering over the last few weeks on Tocom (about 350,000 ounces), taking the market almost to net flat," MKS Group said in a note.
Among other precious metals, platinum rose 1 percent to $1,417.64 an ounce and palladium gained 0.8 percent to $775.75 an ounce, as labour strikes continued in top producer South Africa.
Job cuts are a certainty in South Africa's platinum belt because of losses stemming from a 10-week strike in the industry, the chief executive of world No. 1 producer American Platinum said, raising the risk of further unrest.
Silver gained 0.8 percent to $19.93 an ounce.