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 US economy eroded investment interest and encouraged appetite for riskier assets.
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 US economic releases and comments by Federal Reserve chair Janet Yellen that interest rates could rise in the first half of 2015.
Gold futures for April delivery rose $2.20 to $1,296.00 an ounce.
The dollar steadied against a basket of currencies, drawing support from a rise above 2.7% in 10-year US treasury yields, which were 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. "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 US, 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 US 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.
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