LONDON (Reuters) - Gold firmed on Monday as uncertainty ahead of Donald Trump's inauguration as U.S. President this month supported prices after the previous session's retreat, though an uptick in the dollar kept a lid on gains.
The metal, which posted its biggest weekly increase in two months last week, lost some ground on Friday after a U.S. payrolls report supported the view that the Federal Reserve will raise interest rates this year, boosting the dollar.
However, it found good support around $1,170 an ounce, the 23.6 percent retracement of its November to December decline.
Spot gold was up 0.3 percent at $1,176.15 an ounce at 1045 GMT, while U.S. gold futures for February delivery gained $2,80 to $1,176.20.
"Trump is speaking this week," said Julius Baer analyst Carsten Menke. "On Wednesday he has a press conference, which will be very interesting, given how gold has reacted since his election."
Gold slid more than 12 percent in the past quarter as Trump's election victory boosted expectations that his tax and spending policies would boost the dollar and inflation, prompting more U.S. rate increases.
"From our perspective, in terms of the overall economic backdrop, we see no reason to change our views," Menke said. "We are still bullish on the dollar, we still see more upside for bond yields, which of course translates into some headwinds for gold."
Hedge funds and money managers cut their bullish positions in COMEX gold contracts for the eighth straight week in the week to Jan. 3, taking their holdings to the smallest in 11 months, data showed on Friday.
Gold is highly sensitive to rising U.S. interest rates, which increase the opportunity cost of holding non-yielding bullion while boosting the dollar, in which it is priced.
"The December FOMC minutes released on Wednesday emphasised that the Fed is also uncertain about the direction of fiscal policy after Trump's win," Capital Economics said in a note.
"We still expect the central bank to hike interest rates four times this year in response to some of Trump's more inflationary policies."
Strong outflows from gold-backed exchange-traded funds have lessened of late, while seasonal buying in the big Asian gold markets, where India is deep into wedding season and China is approaching the Lunar New Year, has been strong.
Silver was flat at $16.48 an ounce, while platinum rose 0.3 percent to $970.
Palladium was little changed at $755.98, having touched a five-week high at $768.10. It rallied more than 11 percent last week.
(Additional reporting by Swati Verma and Nallur Sethuraman in Bengaluru; Editing by David Goodman)