Gold inches higher as dollar weakens

London - Gold edged up on Monday as the dollar retreated against the euro, though stronger equities and appetite for risk continued to dull the metal's appeal as an alternative investment.

Strength in oil prices also supported bullion, which is usually seen as an hedge against oil-led inflation.

Spot gold was up 0.1% at $1 196.30 an ounce by 12:25. It lost about 2% last week on a strong dollar and expectations of rising US interest rates.

Prices were forecast to remain in tight ranges during the holiday-shortened week.

"I don't think investors will enter the market at this time of the year, but liquidity is so thin that if there are orders to be filled the impact could be very large," ABN Amro analyst Georgette Boele said.

"I remain very bearish for 2015 ... If you have a sentiment of positive risk appetite and the same time for a higher dollar and higher interest rates, gold will not be able to move higher."

The dollar fell 0.1% against a basket of major currencies, mostly because of euro strength, but was still holding within striking distance of a nine-year peak set on Friday. A weaker dollar makes gold cheaper for holders of other currencies.

European equities rose, underpinned by stronger energy shares that were lifted by expectations that Brent crude futures are likely to remain above $60 for the rest of the year.

Gold received some early support from buying in top gold consumer China, where local prices were at a premium of about $3 an ounce to the global benchmark, though they slipped later in the session to about $1.

But the metal's gains could be difficult to hold because of expectations of higher US interest rates and a strong outlook for the dollar. The market will monitor a series of US economic data, including GDP numbers, for the third quarter on Tuesday.

Higher interest rates would boost the dollar and hurt non-interest-bearing bullion, which was lifted by central bank liquidity and a low interest rate environment in the years following the 2008 financial crisis.

Among other precious metals, silver was down 0.1% at $16.05 an ounce. Platinum was unchanged at $1 194.90 an ounce, falling again into parity with gold, and palladium gained 0.3% to $802.40 an ounce.