Gold edged lower on Monday after equities reversed gains and the U.S. dollar rallied to the highest in more than a month, but some investors opted to stay on the sidelines ahead of a U.S. Federal Reserve meeting this week that could weigh on the precious metal.

Pre-produced parts of watches are on display at a plant of gold refiner and bar manufacturer Argor-Heraeus SA in the southern Swiss town of Mendrisio, March 1, 2012. , Photo: Reuters

Gold has risen more than 9 percent this year, building on 11 consecutive years of increases, after the Federal Reserve said it would keep rates near zero until at least 2014. But the Fed may have to reconsider any plans for additional monetary easing when it meets on Tuesday if there are more signs that the U.S. economy is recovering.

Spot gold hit an intraday high of US$1,713.80 per ounce before slipping to $1,704.71 an ounce by 0707 GMT, down $3.32. On Friday, gold rose nearly 1 percent on higher crude oil and U.S. equities after U.S. employment grew solidly for a third straight month in February – beating expectations.

Bullion struck a record around $1,920 per ounce last September.

"We will see more data coming out of the U.S., and whether or not there will be a QE3," said Ronald Leung, director of Lee Cheong Gold Dealers in Hong Kong, referring to a possible third bond-buying programme to lower interest rates.

"If there's no QE3, then there will be disappointed selling again. If the dollar continues to strengthen, then of course gold will be under pressure. There's a little bit of physical buying. Some people cover their shorts after the weekend."

U.S. April gold fell $6.00 to $1,705.50 per ounce.

Money managers, including hedge funds and other large speculators, cut their bullish bets in gold to the lowest level in five weeks during the week of March 6, as prices unwound from a late-February peak near $1,800 per ounce.

The Nikkei share average dipped after breaking above 10,000 to a seven-month high as hedge funds locked in profit following a 3.7 percent rally in the previous two sessions and 17 percent so far this year.

Gold often tracks equities because it is currently perceived as a risk asset, especially during the financial turmoil in Europe, where some investors will cash in the metal to cover losses in other markets.

"Gold looks to have recovered from last week's technical dip, but remains vulnerable to correction within a broadly positive longer term trend. There is a risk we may see renewed downside pressure on bullion as we move towards the end of the quarter," ANZ said in a note. "In the third and fourth quarters of last year, hedge fund selling in the final 2-3 weeks of the quarter weighed on the market. Improving equity markets in the first quarter of 2012 may mitigate that and we are fairly comfortable with our end-quarter forecast of $1,720."

Among currencies, the dollar jumped to the highest level in nearly seven weeks against a basket of major currencies after last week's upbeat jobs data suggested the U.S. economy may not be in dire need of further monetary stimulus from the Fed.

The euro also fell to the weakest in nearly a month after facing what traders described as a buy-the-rumor-sell-the-fact fall on Greece's bond swap deal with private creditors which will clear the way for a new bailout.

Greece's successful debt restructuring brought some relief to riskier assets on Friday, but poor euro zone growth prospects and fears Portugal may also impose losses on creditors were likely to limit the fall in yields on weaker sovereign bonds.

Precious metals prices 0707 GMT

Metal Last Change Pct chg YTD pct chg Volume

Spot Gold 1704.71 -3.32 -0.19 9.01

Spot Silver 33.88 -0.27 -0.79 22.35

Spot Platinum 1673.24 -3.82 -0.23 20.12

Spot Palladium 699.10 7.10 +1.03 7.14

COMEX GOLD APR2 1705.50 -6.00 -0.35 8.85 18914

COMEX SILVER MAY2 33.93 -0.29 -0.84 21.53 3183

Euro/Dollar 1.3099

Dollar/Yen 82.23

COMEX gold and silver contracts show the most active months

Source: Reuters