Gold prices held firm on Monday in a mostly range-bound trade, helped by a dip in dollar, while investors have dialled down their expectations of further aggressive monetary policy tightening in the United States. Spot gold rose 0.2% to $1,856.35 per ounce by 1429 GMT. U.S. gold futures were also 0.2% higher at $1,861.10.
The dollar index hit a more than one-month low, making bullion less expensive for those holding other currencies. Meanwhile the benchmark 10-year note yields ended on Friday slightly above a six-week low.
"If economic fears further weigh on yields, gold could capitalise once more, with $1,870 being the first test and then $1,900," said Craig Erlam, senior market analyst at OANDA. "Sentiment in the markets remain extremely fragile but as long as focus is on the deterioration of the economic outlook rather than additional rate hikes being priced in, gold can continue to perform well."
Investors now expect an eventual slowdown in the U.S. monetary policy tightening after the Federal Reserve hikes interest rates in June and July.
"Trading gold on a potential Fed pause more than a year on the horizon isn't exactly an attractive proposition for money managers, particularly as quantitative tightening continues to sap liquidity from markets in the meantime," analysts at TD Securities said in a note. "In this sense, we continue to see significant hurdles for speculative flows into gold."
Despite a mostly positive showing since falling to a more than three-month low of $1,786.60 per ounce on May 16, gold prices are on course for a second straight monthly fall. While gold is viewed as a hedge against higher inflation and safe store of value during political and financial uncertainties, higher rates raise the opportunity cost of holding non-yielding bullion.
Spot silver fell 0.6% to $21.96 per ounce, platinum was up 0.1% at $959.03. Palladium dropped 1% to $2,041.32. Federal government offices, stock and bond markets are closed on Monday for the Memorial Day holiday in the United States.
(Reporting by Eileen Soreng in Bengaluru; Editing by Alison Williams)