Bullion prices rallied more than 3 percent last week, as investors got some relief after Greece secured a bailout and expectations of further monetary easing boosted gold's appeal as an inflation hedge.
During a weekend meeting of Group of 20 finance ministers and central bankers, euro zone nations were told to put up more money to fight their debt crisis if they wanted more help from the rest of the world.
"There is a softer turn across commodities after the G20 added to the risk anxiety," said Nick Trevethan, senior commodity strategist at ANZ in Singapore.
"Gold failed to break the $1,780 resistance last week and is likely to bounce between $1,760 and $1,780, but the eventual breakout will be towards the upside."
Spot gold lost 0.4 percent to $1,773.04 an ounce by 0633 GMT, after posting a gain of 3.3 percent last week. It hit a five-month high of $1,787.11 last Thursday. U.S. gold was little changed at $1,775.
Oil prices hovered below a 10-month high as heightened tension over Iran's disputed nuclear programme remained supportive. Geopolitical instability in the region could propel gold, traditionally a beneficiary of political and economic
turmoils, to higher levels, analysts said.
The dollar weakness also helped underpin the sentiment in gold. The dollar index inched up on Monday, hovering above its lowest level in more than two months hit on Friday.
"So long as the dollar remains weak, it is possible for gold to overtake the $1,800-level in the short term," said an official at a Tokyo-based bullion house, but cautioned that gold's upside could be limited if solid evidence of an economic
recovery emerged.
Scrap gold has flowed into the Tokyo market since late last week, as yen-priced gold rallied to its highest since September and attracted selling interest, the official said.
"Our retail prices rose 9 percent since the end of January. We've seen some liquidation by the general public, not only because of high gold prices but also a weak Japanese yen."
Eyes are on the European Central Bank this week, which is expected to inject nearly half a trillion euros to banks in the second allotment of a 3-year long-term refinancing operation (LTRO), to buy more time for Europe's politicians to find a
solution to the euro zone debt crisis.
Speculators raised their bullish bets in U.S. gold futures and options to the highest level in five months during the week to Feb. 21, data from the U.S. Commodity Futures Trading Commission showed.
Gold and silver European Opening View feb 27 2012
Gold and silver have seen a steady start this morning while the PGMs have run into pockets of profit taking with platinum off 0.7% and palladium just over 1% at the time of writing. Ongoing investment demand looks set to lift gold towards the $1800 level in the coming sessions as the metal continues to be seen as a hedge against geo-political and macro-economic concerns, rising oil prices and dollar weakness with the metal to find support around $1763. Net ETF gold holdings across the funds we currently monitor hit a record 2,377.5-tonnes Friday. The AU/AG ratio is also signalling further gains for silver with the ratio on course to challenge the 49.3-48.6 area, which basis current gold prices would suggest a target of $35.90-36.45.
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