Gold prices slipped on Monday afternoon in Europe, with sentiment faltering due to dollar strength against the euro and yen, dealers said. Spot gold dropped to $423.05/423.80 per troy ounce by 1555 GMT from $425.80/426.50 late on Friday in New York. Dealers and analysts saw bullion prices trading in a $422-$428 band, with support from physical buying and pressure from an upbeat dollar outlook as investors bet on higher interest rates.
A stronger dollar dents sentiment towards gold for non-US investors. The currency hit a seven week high against the euro as expectations for rising US interest rates were fuelled by hawkish comments at the weekend from St Louis Federal Reserve President William Poole.
Gold has lost around five percent in value since hitting a fresh 2005 high at $446.70 on March 11 due to fund profit-taking on dollar strength.
"While speculative positions are no longer as extended as they were, gold may fall further should the dollar continue to firm," UBS Investment Bank analyst John Reade said.
He added however that the bearish trend looked like a short-term move due to expectations for the dollar to resume a longer overall downtrend.
Bullion dealers were also following remarks on possible International Monetary Fund gold sales to help finance third world debt relief.
Last week IMF Managing Director Rodrigo Rato said in a newspaper report that if member countries wanted to use the fund's massively undervalued gold reserves for debt relief they should do so by selling the metal, not by revaluing its book rate.
The IMF is the world's third biggest holder of gold, with more than 100 million ounces, and any sales would be seen as significantly bearish. But the United States, which wields influential voting power within the IMF, has said it sees no need for gold sales.
Germany's Bundesbank also said on Monday the IMF should not sell or revalue its gold reserves.
Barclays Capital said in a daily report that while it saw gold moving lower on balance in the short term, the Bundesbank news could be a boost for prices.
Silver eased slightly with gold prices to $6.93/6.96 from $6.96/6.99 late in New York on Friday.
Platinum slipped to $857.00/861.00 from $860.00/863.00, while palladium stood at $197.00/201.00 from $198.00/202.00.
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