Melbourne: Spot gold edged lower on Monday, but remained supported in the face of a firm dollar as investors bet a weaker US payroll report would push out the timing of any rate hike.
The US economy added the fewest number of jobs in seven months in April and Americans dropped out of the labour force, leaving some economists anticipating only one interest rate hike this year. But encouraging annual wage growth data helped the dollar to revive.
"Gold held on to a lot of the gains despite the strengthening dollar - it seems to be well supported," said analyst Daniel Hynes at ANZ in Sydney.
"Investors certainly saw the payroll numbers being a positive in terms of no rate hike in the shorter term, which lessened the blow of that stronger currency," he added.
Spot gold eased 0.7 percent to USD 1,279.80 an ounce by 0707 GMT, after hitting a five-month high last week, and is consolidating within a USD 1,268-USD 1,303 trading band. Spot gold closed little changed last week after a 5 percent jump the week before.
US gold fell about 1 percent to USD 1,281.80.
Helping the dollar rebound, New York Federal Reserve President William Dudley said two US rate hikes this year were still a "reasonable expectation."
A stronger dollar erodes the purchasing power of buyers paying with other currencies.
"We still expect the price of gold to rise further, underpinned by demand for inflation hedges as inflationary pressures continue to build," said Capital Economics in a research note.
Elsewhere, a run of Chinese data this week is expected to show activity moderated in April after a strong showing in March. A Reuters poll forecast a small drop in all-important exports last month.
Sentiment in global markets soured after China`s exports and imports fell more than expected in April, underlining weak demand at home and abroad and cooling hopes of a recovery in the world`s second-largest economy.
Sentiment was further tarnished after an article in the official People`s Daily on Monday said China`s economic trend would be "L-shaped", rather than "U-shaped", and definitely not "V-shaped".
The newspaper, which cited an "authoritative source", said the government would not use excessive investment or rapid credit expansion to stimulate growth.
In news, Hedge funds and money managers raised their net long positions in COMEX gold and copper contracts in the week to May 3, US Commodity Futures Trading Commission data showed on Friday.
China`s gold reserves stood at 58.14 million fine troy ounces at the end of April, up from 57.79 million fine troy ounces at the end of March, the central bank said.
In other metals, silver fell half a percent to 17.37 an ounce, dragged down also by steep falls in industrial metals.
Platinum fell by 0.6 percent to USD 1,068.50 and palladium fell by 0.8 percent to USD 598.47 an ounce.