LONDON: Gold rose on Monday as a rally in the dollar paused and as investors found value following a two-day slide caused by concerns the US central bank could soon start tapering its monetary stimulus.
Bullion has fallen 10 percent since Federal Reserve Chairman Ben Bernanke said last month the US economy was recovering strongly enough for the $85 billion monthly bond-buying stimulus to be reduced later this year.
The tapering would support a rise in interest rates and bolster the dollar, making gold less attractive.
Data on Friday showed that US employers added 195,000 new jobs to their nonfarm payrolls last month, indicating that the improvement in the jobs market remains on track.
"The move down (in gold) on Friday was pretty strong, so obviously you would expect some kind of rebound and if you look at currencies, the dollar is coming off earlier highs, so there is a bit of stabilisation in gold after losses," Credit Suisse analyst Karim Cherif said.
Spot gold rose to a session high of $1,238.30 an ounce and was trading up 0.8 percent at $1,233.36 an ounce by 1411 GMT. Comex gold futures for August rose $19.40 to $1,232.20.
Prices fell two percent on Friday after the US jobs report and analysts expect further declines as the economy improves.
"Generally speaking it remains a tough environment for gold, investors are still selling, inflation expectations are still dropping, yields are where they should be and they will probably keep rising," Cherif said.
Gold posted its biggest quarterly loss on record, down 23 percent for April-June, and fell to $1,180.70 for the first time in nearly three years on June 28.
On Monday the US dollar, which had initially rallied 1.5 percent to a three-year high against a basket of currencies, took a breather as investors booked profits on its rise.
The benchmark 10-year US Treasury yield remained comparatively high, at 2.67 percent. As gold pays no interest, recent strengthening in returns from US bonds and other markets is seen as negative for the metal.
Investors were now focusing on the Federal Open Market Committee (FOMC) minutes - records from the Fed's June meeting - due for release on Wednesday.
"No figures of any import out today, leading me to think it will be fairly quiet ahead of the FOMC on Wednesday," a trader at Marex Spectron said.
FURTHER DECLINES POSSIBLE
Continued liquidation from gold-backed exchange-traded funds signalled that interest in the metal was waning.
Holdings of the world's largest gold-backed exchange-traded fund, SPDR Gold Trust, fell 0.3 percent to 30.92 million ounces on Friday, hitting fresh lows since February 2009.
Analysts said further declines in the gold price were possible, as physical demand remains lacklustre during the summer lull.
Silver rose 1.1 percent to $19.07 an ounce, having lost 3.6 percent in the previous session.
Platinum and palladium gained 2.2 percent to $1,351.24 an ounce and $694.20 an ounce respectively, also helped by news of renewed strike disruptions in major producer South Africa.