A firmer US dollar set the tone for a weaker gold price Monday, after bullion was given a boost last week by weaker-than-expected employment data from the US.
The US Dollar index now at 94.04, is up 0.22% and its highest since 28 April.
Commerzbank analysts said in research published Monday that, "financial investors clearly took profits' after the gold price shot up on Friday," pointing out that the move higher Friday was driven not by fundamentals, but instead speculation.
US job data published by the Bureau of Labor statistics on Friday showed that non-farm payroll employment increased by 160,000 in April, falling short of analysts expectations of 202,000.
There remains bullish sentiment towards gold prices going into the third and fourth quarters of 2016, according to various research.
TD securities noted that recent "Bank of Japan inaction prompted money managers to take very long bets on gold."
Adding to the bull case is low expectation from the market for an interest rate kike by the Fed anytime soon, staying sub-40% until the year-end, CME Group Fedwatch data showed.
TD securities figures also indicated a net change in long positions of 50,303 to a total of 338,476, according to COTR data. By comparison short positions are much leaner at 66,828.
"We expect gold to strengthen towards the later part of Q3, through to Q4, potentially testing $1,350," UBS analyst Jon Teves wrote Monday, adding that the Swiss bank expects seasonal physical demand to also drive prices up.
However, the Indian physical gold market was said to be at "standstill" Monday, with brokers, traders and refiners all bemoaning the sluggish activity levels.
After China, India is the world's number two physical gold consuming nation.
"The expectation of downward pressure from a Fed rate hike is only though to have a temporary impact on gold, and 'safehaven' demand will pull investors back," Teves said in her research note.
The London Bullion Market Association Gold Price settled Monday afternoon at $1,265.25/ oz from a Friday afternoon settlement of $1,289/oz.
