Gold neared its highest level in more than two weeks on Monday, but gains may be capped by a rally in equity markets and promising U.S. jobs data that dampened speculation the Federal Reserve may boost monetary stimulus.
Bullion has slipped almost 12 percent so far this year, having posted annual gains in the past 12 consecutive years as easy monetary policy prompted investors to buy the precious metal to hedge against inflation and economic uncertainties.
Gold added $5.36 an ounce to $1,475.56 by 3.17am GMT due to a stronger euro. It hit a high of $1,487.80 on Friday, its highest since April 15, on safe-haven buying spurred by a cut in interest rates by the European Central Bank and the Fed's decision to stick to its stimulus program.
"The market is trying to test $1,487 and it has been tested twice. That might be the reason why the market is pushing up. On the other hand we have a slight improvement in funds holding of gold," said Joyce Liu, an investment analyst at Phillip Futures, referring to a report from the Commodity Futures Trading Commission (CTFC).
"If you look at the technicals, gold is still in an upward correction. For it to go into the bull territory, we at least need to break $1,530. For me to confidently call it an upward trend, it needs to break $1,590. We are quite some way off."
U.S. gold for June delivery was at $1,475.00 an ounce, up $10.80.
Hedge funds and money managers increased their bullish bets in gold futures and options in the week to April 30 as the price of the precious metal rallied 4.5 percent during the period, a report by the CFTC showed on Friday.
But daily outflows on exchange-traded funds indicated investors were still jittery after gold's historic decline in mid-April, when it plunged more than $200 over two days.
SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, said its holdings fell 0.34 percent to 1065.61 tons on Friday - their lowest since September 2009.
Stocks rose in Asia on Monday as investors gave the thumbs up to an upbeat U.S. labor force report that sent Wall Street to an all-time closing high last week, while the euro edged up against the dollar.
U.S. employment rose at a faster pace than expected in April and hiring was much stronger than previously thought in the prior two months, denting speculation the Fed may boost monetary stimulus.
In the physical bullion market, purchases were mostly driven by worries that prices could rise again, having recovered more than $150 since hitting a 2-year trough in April.
But dealers also noted an increase in demand from No.2 consumer China as Shanghai gold futures fetched premiums of more than $10 an ounce to U.S. futures or cash gold, making it cheaper to buy the metal from the overseas market.
"There's a bit of buying after the weekend. You can say supply in the physical market has yet to return to normal," said a dealer in Hong Kong. "There's short covering, but I think there's some sort of hesitation whenever prices approach $1,500."
A surge in physical buying in Asia and other parts of the world plucked gold prices from recent lows, leading to a shortage of gold bars, coins and nuggets in Hong Kong, Singapore and Tokyo.