LONDON: Gold edged down on Monday as the dollar steadied but prices remained near a three-week high after a surprise rate cut in China raised hopes demand for bullion in the top consumer would increase.
China cut interest rates unexpectedly on Friday to support the world's second-biggest economy, and could reduce them again, according to sources.
Spot gold fell 0.5 percent to $1,193.90 an ounce by 1244 GMT.
It hit a three-week high of $1,207.70 on Friday. US gold futures dropped 0.3 percent to $1,193.60 an ounce.
"The three-week high hit on Friday is just a pause in the downtrend. It is true the speculators community has come back a bit but overall the big macro picture has not changed," ABN Amro analyst Georgette Boele said. "We still expect interest rates to be hiked next year in the US and possibly more quickly than the market currently anticipates.
That will pressure gold."
The dollar was unchanged against a basket of leading currencies, close to a four-year high.
A strong greenback makes dollar-denominated gold more expensive for holders of other currencies.
Bullion has been pressured by the dollar and robust economic prospects for the United States in recent weeks, hitting a four-and-a-half-year low this month.
The Federal Reserve's relatively hawkish position and dollar strength should continue to pressure gold, analysts said.
"Despite the massive easing that is being initiated by a number of central banks, we are not sure this will be enough to justify a sustained (gold) rally," said INTL FCStone analyst Edward Meir.
Hedge funds and money managers boosted net long positions in gold futures and options to 60,307 lots in the week to Nov. 18, the Commodity Futures Trading Commission said on Friday, the highest bullish stance since late October.
In the physical market, Chinese prices traded at a premium of $1-$2 an ounce on Monday, unchanged from the previous session.
Traders are hoping the Chinese interest rate cut will revive appetite for gold jewellery, bars and coins.
Demand slid by more than fifth in the first nine months, according to the China Gold Association, after record buying last year, as consumers became wary of falling prices.
Among other precious metals, platinum was unchanged at $1,213.95 an ounce, while palladium rose 0.1 percent to $788.50 an ounce. Silver dropped 0.8 percent to $16.27 an ounce.
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