Gold rose on Monday after posting its biggest quarterly fall on record, as the dollar steadied and equity markets eased ahead of U.S. economic data this week which should give more clues on the country's monetary policy.
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Comments from a U.S. Federal Reserve official on the need to maintain the bank's stimulus measures for longer also helped gold recover some of the previous week's losses, when it fell 5 percent to three-year lows of $1,180.71 an ounce.
Investor confidence in the metal has been eroded - gold plunged 23 percent in the second quarter - as Fed Chairman Ben Bernanke laid out a strategy to roll back the bank's $85 billion monthly bond purchases, which supports an increase in interest rates, making gold less attractive.
Spot gold was up 0.8 percent to $1,243.21 an ounce by 0946 GMT, while Comex gold rose about $19.10 to $1,242.70. Technically, the metal is expected to run into strong support in the $1,155 region, analysts said.
"Today's rebound is showing us that a lot of the panic activity we had last week has run its course for now ...positions that needed to be reduced were reduced last week," Saxo Bank senior manager Ole Hansen said.
The dollar index retreated from a four-week peak hit on Friday, while European equities eased after disappointing China's factory activity data, which reached its lowest in nine months in June, deepening worries about the world's second-largest economy.
Investors will focus on Friday's report on U.S. payrolls, where a strong reading would lift both Treasury yields and the dollar.
The European Central Bank's policy meeting on Thursday is likely to emphasise that the eurozone economy is in a much different stage of recovery than the United States.
Holdings of gold-backed exchange-traded funds (ETFs) have fallen for the first time this year, with outflows exacerbated by the recent decline in prices. Divestment from the largest ETF fund SPDR Gold Trust totalled nearly 13 million ounces so far this year.
Hedge funds and money managers slashed their bullish bets in gold futures and options to their lowest levels in six years, a report by the Commodity Futures Trading Commission showed on Friday.
WEAK PHYSICAL DEMAND
Lower prices in the past few weeks have failed to rekindle physical demand in Asia, traditionally the biggest buyer of gold.
Asian consumption had helped limit some of the metal's losses when prices fell the most in 30 years in April.
"While the physical market was able to suspend the downward trajectory of gold in April following hefty disinvestment, this time, preliminary data suggest a much weaker physical market footing," Barclays analysts said in a note.
The bank cut its 2013 price forecast to $1,393 an ounce from $1,483.
Sales of American Eagle gold bullion coins plunged to 57,000 ounces in June, the lowest sales since August last year, as physical demand from retail investors and collectors sank.
Silver rebounded 0.7 percent to $19.74 an ounce, having reached a near three-year low at $18.19 in the previous session. Prices are down 35 percent this year.
Platinum rose 0.7 percent to $1,348.49 an ounce and palladium jumped 3 percent to $675.22 an ounce. (Additional reporting by A. Ananthalakshmi in Singapore; editing by Jason Neely)