The precious metal could be susceptible to losses, given weak investor sentiment and a strong dollar
Gold was trading near its highest in nearly a week on Monday, retaining sharp short-covering gains from the previous session, but the metal could be susceptible to losses, given weak investor sentiment and a strong dollar.
Spot gold held firm at $1,195.50 an ounce as of 0324 GMT, after a gain of 1.8 percent on Friday, when it had touched $1,199, its highest since Dec. 22 and its biggest one-day jump in 2-1/2 weeks. It had closed at $1,194.65 on Friday.
Bullion's rise has come in thin market conditions due to the Christmas and year-end holidays and it was unclear whether the gains would be maintained when trading picked up again.
"There were stops triggered around $1,185 and then again around $1,190 which resulted in sharp spikes as participants covered short positions in the low-volume environment," said MKS Group trader James Gardiner.
The $1,200 level is a resistance point, while $1,185 should provide some support, he said.
"It's very hard to quantify whether the price action is something of fundamental importance or whether it is a function of liquidity during this time of year," MKS said in a note last week.
Bearish sentiment in the bullion market was evident in SPDR Gold Trust, the world's largest gold-backed exchange-traded fund. The fund's holdings fell 0.08 percent to 712.30 tonnes on Friday, a six-year low.
Flows in and out of the fund tend to influence gold prices due to the size of its holdings.
Also hurting gold was the strong outlook for the U.S. dollar, reflecting a robust economy and the possibility of higher interest rates.
The dollar index, which tracks the greenback's value against a basket of currencies, was trading close to a nine-year peak hit last week.
A strong dollar makes gold more expensive for holders of other currencies and reduces its appeal as a hedge.
Asian stocks tip-toed higher on Monday, following gains on Wall Street, where the Dow and S&P 500 both closed at record highs on Friday, hurting safe-haven gold.
The strength in the dollar and equities is largely responsible for gold's drop of nearly 1 percent this year, although the losses are much smaller than the 28 percent slide in 2013.
In recent months, weakness in oil and strong U.S. economic data have also weighed on the gold price.
Several brokerages have forecast further weakness in 2015, when the Federal Reserve is expected to raise rates.