A dollar recovery and the absence of further North Korean missile tests have undermined immediate gold demand with reduced defensive demand.
Gold prices continued to drift lower late in US trading on Friday as the US currency recovered from its worst levels, although prices closed just above $1,345 per ounce.
The latest COT data recorded an increase in long, non-commercial gold positions to above 245,000 contracts in the latest week from above 231,000 previously.
This was the 7th successive significant weekly gain in long positions and the largest long position since early October 2016. The data overall will increase the potential for position liquidation and a sharp gold correction weaker if sentiment shifts.
In Asian trading on Monday, there was some relief that damage to Florida from hurricane Irma may be slightly less severe than expected after a late change in course.
There was also some relief that there were no further North Korean missile tests during the weekend which helped underpin equity markets.
In this environment, there was a measured dollar recovery against major currencies with USD/JPY moving back above the 108.00 level.
The firmer dollar helped curb gold support and there was also a decline in defensive demand for precious metals as risk appetite improved and equity markets made headway.
Gold gapped lower at the Asian open and declined to lows around $1,335 per ounce before stabilising just above this level in European trading.
The dollar was able to gain fresh traction in early US trading as relief dominated markets and gold retreated to the $1,332 per ounce area as USD/JPY strengthened to highs above 108.70.
US currency and risk trends will remain dominant in the short term with gold liable to move slightly lower if the dollar continues to make a sustained recovery.
There will, however, be a fresh spike higher in gold if there is another missile test from North Korea.
Gold Prices 4-Hour Chart