Gold inched lower on Monday, adding to the previous session's sharp sell-off as confusion over the outlook for U.S. monetary policy dragged on, with weak buying from China overnight adding to the softer tone.
Comments from St Louis Federal Reserve President James Bullard that the Fed could reverse last week's surprise decision to maintain monetary easing at its next meeting helped push gold down 3 percent on Friday, erasing gains made in a volatile week.
Spot gold was down 0.1 percent at $1,324.16 an ounce at 1425 GMT, while U.S. gold futures for December delivery were down $7.70 an ounce at $1,324.80.
Prices have fallen more than 20 percent this year, driven largely by Fed hints that it may begin to rein in its $85 billion monthly bond-buying programme before the end of 2013. Uncertainty over the timing of the move has led to choppy trading.
"After last week's move a lot of people are confused on how the market is going and are trying to avoid big positioning ahead of next week's non-farm payrolls," MKS SA head of trading Afshin Nabavi said.
"Unless there is some mega change in the U.S. labour market, I don't think we will have any QE slowdown this year and that should grant some support to gold."
Ultra-loose monetary policy has been a key driver of higher gold prices in recent years, as it keeps up pressure on long-term interest rates, keeping the opportunity cost of holding bullion low, while stoking fears of inflation.
Friday's hawkish comments from Bullard weighed on European shares early on Monday, while a landslide victory in German elections for Angela Merkel supported the euro.
PHYSICAL DEMAND SOFT
Buying in China, which is tipped to emerge as the world's biggest gold consumer this year, was muted as buyers returned after the mid-autumn holiday. Chinese buyers are awaiting further price falls, dealers said.
Interest in gold-backed exchange traded funds remained relatively soft, with holdings of the largest, New York's SPDR Gold Shares, easing another tonne last week. That has brought its total outflow for the year to 440 tonnes.
Among other precious metals, silver was up 0.1 percent at $21.81 an ounce. The gold/silver ratio, or the number of silver ounces needed to buy an ounce of gold, rose to 61.1, its highest since mid-August, as silver underperformed.
"In our view, the link between gold and silver market selling reflects the long-established gold-to-silver price ratio, the variations of which have historically occurred within a well-defined range," Morgan Stanley said in a note on Monday.
"In a bullish environment for silver, prices for this metal tend to trade at or below the long-run average of this price ratio, which we estimate at 59.7:1. In bear markets, the reverse is the case."
Spot platinum was down 0.3 percent at $1,423.49 an ounce and spot palladium fell 0.9 percent at $708.03 an ounce.
(By Jan Harvey; Editing by Jason Neely)