By Marcy Nicholson and Jan Harvey
NEW YORK/LONDON (Reuters) - Gold fell more than 1 percent on Monday from the prior session's three-week high, after the dollar was lifted by Friday's upbeat U.S. jobs data that reinforced expectations that the Federal Reserve will raise interest rates next week.
A short-covering rally initially swept bullion after the data on Friday, though robust U.S. data would typically send gold lower, as it would support the case for a rate increase. This lifts the opportunity cost of holding non-yielding assets such as gold.
Spot gold was down 1.1 percent at $1,074.90 an ounce at 2:01 p.m. EST (1901) GMT.
U.S. gold futures for February delivery settled down 0.8 percent at $1,075.20.
A tumble in crude oil futures to a near seven-year low also pressured gold prices, traders said. [O/R]
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Gold prices have fallen 9 percent so far this year, largely on the back of expectations that U.S. interest rates are set to rise for the first time in nearly a decade. The focus remains very much on next week's U.S. central bank meeting.
"Most people have been looking at the potential for a rate hike in the U.S. and pretty much that alone, ignoring all other news," Simon Weeks, head of precious metals at the Bank of Nova Scotia, said, adding: "There must have been people who were caught short on Friday."
Hedge funds and money managers raised their net short position in COMEX gold futures and options to the biggest since records became publicly available in 2006, data showed late Friday.
"Given last week's rally, many of these shorts have likely been lifted, and we expect both gross shorts to come down and net length to pick up next week," Citi Research said in a note.
"We expect that technical upside pressure will be subdued into year-end while macro conditions remain skewed to the downside."
With U.S. interest rates set to rise, the wider environment remains unfriendly for gold, analysts said.
"We remain bearish and lower our 12-month price target to $1,000 per ounce," Julius Baer said in a note on Monday.
More supportively, central bank data from China, which according to Reuters calculations showed the country probably added nearly 21 tonnes of gold to its reserves in November, also pointed towards some support for the metal.
Spot platinum made the biggest fall among precious metals, dropping as much as 3.4 percent to $849.50 an ounce.
Silver was down 1.4 percent at $14.35 an ounce and palladium was down 2.3 percent at $550.65 an ounce.
(Additional reporting by A. Ananthalakshmi in Singapore; Editing by Susan Thomas and James Dalgleish)