Gold prices lingered close to a two-month high on Monday, after softer US economic readings last week cemented prospects of an interest rate cut in June by the Federal Reserve.
Spot gold edged 0.1% lower to $2,081.34 per ounce, as of 0630 GMT, but hovered near $2088.19, a level seen on Friday when the contract hit its highest since Dec. 28. US gold futures fell 0.3% to $2,090.10.
"The key drivers for gold is what's going to happen on the interest rate front - and we saw a move higher in gold on Friday because a series of macro releases out of the US moved the narrative towards the Fed possibly decreasing rates sooner than expected," Marex analyst Edward Meir said.
Gold prices rose about $50 last week, with absolutely all of the gains coming on the last two days on the back of poor US manufacturing and construction spending data and easing price pressures, according to the Fed's preferred inflation gauge.
This came as the US dollar drifted within a tight range on Monday, pressured by lower Treasury yields, as traders waited for more crucial economic data for fresh clues on the timing of Federal Reserve interest rate cuts.
The euro was firm following Friday's 0.33% advance, with a European Central Bank policy decision looming on Thursday.
The yen fluctuated around the closely watched 150 per dollar level, as investors tried to assess whether the Bank of Japan's exit from its negative interest rate policy could happen as soon as this month.
The dollar index - which measures the currency against six major peers, including the euro and yen - was little changed at 103.85 as of 0530 GMT, oscillating narrowly in the bottom half of it 103.43-104.97 range of the past month.
The index lost 0.26% on Friday following some weak manufacturing and construction spending data.
That also weighed on Treasury yields, removing additional support for the dollar, with the benchmark 10-year yield sliding as low as 4.178% for the first time in two weeks. The yield stood around 4.2% on Monday.
"Bias appears to be swinging towards a test of range support," in the lead up to key macro releases this week, as well as Fed Chair Jerome Powell's testimony to Congress, Westpac strategists wrote in a client note.
"However, markets will need a major shift in data to suggest that range support will be anything other than another buying opportunity," that will keep the dollar index within its current range, the note said.
This week brings manufacturing and services ISM readings on Tuesday, with the main event on Friday in the form of monthly payrolls figures.
