LONDON - Gold edged lower on Monday, after rising by nearly 2 percent in the previous session, as funds were seen cutting bullion holdings for better investment yields in riskier assets such as equities.
Spot gold dropped 0.4 percent to $1,575.26 an ounce by 1406 GMT. On price charts the metal looked vulnerable to re-test a 10-month low of $1,539.70 hit last week, analysts said.
U.S. gold futures for June delivery were little changed at $1,576 an ounce.
"It seems that today we have risk-on sentiment in the market which can explain the weakness in gold prices," Commerzbank analyst Carsten Fritsch said.
"Prices still look vulnerable in the short term after the huge drop to the lowest in ten months last week and that level could be tested again this week given continued outflows out of gold ETFs and bearish short-term investor market positioning."
European equities clawed back some of the previous session's hefty losses, as investors snapped up the beaten-down complex, shrugging off concerns about Portugal's ability to keep its bailout programme on track.
U.S. shares, however, opened slightly lower, failing to follow gains elsewhere in the world.
Gold had climbed nearly 2 percent on Friday, the biggest gain since November, after data showed U.S. employers hired at the slowest pace in nine months in March, backing expectations the Federal Reserve would sustain a bullion-boosting monetary stimulus programme.
But the metal failed to hold onto gains, with momentum fading as the dollar remained strong and appetite for assets perceived as riskier returned on widespread expectations the U.S. economy will perform better in the longer term despite the latest series of weaker economic data.
"It seems that renewed weakness in the U.S. and euro zone growth outlook need not produce the drop in the U.S. dollar across the board we saw in 2011," Citi said in a note. "We suspect that the U.S. cyclical leadership would remain intact even if the economy goes through a 'soft patch' in coming months."
The release of the FOMC meeting minutes on Wednesday is likely to be the next main economic event for the market, analysts said.
"Market participants will be keen to get further clarity on where Fed members stand on QE, particularly given rising talks of flexibility and potential tapering of asset purchases," UBS said in a note.
Bullion holdings at the world's major gold exchange-traded funds fell in the previous week to their lowest since August 2012.
Meanwhile, institutional investor George Soros said gold had been destroyed as a safe-haven asset but he expected continued central bank buying to support prices.
Speculators cut gold's net long by 12,962 contracts to 47,164 in the week to April 2, data from the U.S. Commodity Futures Trading Commission showed.
The physical market remained quiet in Asia after Chinese participants returned from a four-day holiday weekend.
But gold futures in Tokyo jumped almost 5 percent to near all time-highs, their sharpest daily rise since September 2011, after the yen dropped to near four-year lows on reports the Bank of Japan would begin buying longer-dated bonds immediately to beat deflation.
Silver fell 0.2 percent to $27.25, after tumbling to its lowest level since July 24 on Thursday.
Hedge funds and money managers have increased their bearish bets on silver futures and options, switching to a net short position on the market for the first time since 2006.
Platinum, which dropped to its lowest since late August last week, was up 0.1 percent to $1,532.74. Palladium rose 0.2 percent at $727.75.