LONDON: Gold edged above $1,250 an ounce in thin volumes on Monday, but remained vulnerable to losses as a rally in stocks and a stronger dollar following reassuring U.S. jobs data curbed the metal's appeal as an alternative investment.
With no major economic data scheduled for Monday and a public holiday in a number of European countries including Germany and France, trading volumes were expected to be thin as markets eyed investment and consumer demand for further cues.
Spot gold edged up 0.1 percent to $1,253.80 an ounce by 1437 GMT. It fell to a four-month low of $1,240.61 early last week, before stabilising.
U.S. gold futures for August delivery gained $1.30 an ounce to $1,253.70.
"Gold is struggling with the upside but it's not really correcting lower either, even as the dollar strengthened in reaction to the ECB rate cut and U.S. data, which instead suggests that the Fed will continue to reduce QE3," VTB Capital analyst Andrey Kryuchenkov said.
"Technically, $1,240 is a strong support level, while on the upside $1,265 could prove a resistance level."
World shares were within touching distance of an all-time high on Monday, spurred on by record low global interest rates and the improving health of major economies. The dollar was up 0.3 percent against a basket of currencies, benefiting from strong U.S. borrowing costs.
Data on Friday showed U.S. employment returned to its pre-recession peak in May, with a solid pace of hiring that offered confirmation the economy had snapped back from a winter slump.
After the data, dealers who had bet against gold in the run-up to the announcement, expecting a strong number, rushed to cover positions as the metal held above $1,240 an ounce, traders said.
"I would still want to sell rallies because this rally was based on short-covering and not fresh buying ... if you look at the CFTC positioning, the longs have been cut and that shows that this rally probably doesn't have the power to significantly move prices higher," Societe Generale analyst Robin Bhar said.
Hedge funds and money managers cut their bullish bets in gold futures and options in the week to June 3 to their lowest level since mid-January, according to data from the U.S. Commodity Futures Trading Commission on Friday.
Among other precious metals, platinum fell 0.4 percent to $1,437.90 an ounce, as investors awaited the outcome of wage negotiations in top producer South Africa.
South Africa's AMCU union and major platinum producers met on Monday for more talks aimed at ending a crippling five-month miners' strike, in a crucial day for negotiations with the government set to pull out of mediation if a deal is not agreed.
The union had said last week its wage demand of 12,500 rand ($1,200) per month was "non-negotiable".
Palladium, of which South Africa is the second-biggest producer, was down 0.5 percent at $836.70 an ounce.
Silver rose 0.6 percent to $19.09 an ounce.
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