By Zandi Shabalala
LONDON (Reuters) - Gold was stable near $1,200 per ounce on Monday as the dollar steadied after sliding in the previous session when U.S. Federal Reserve chairman reiterated the central bank's intention to raise U.S. interest rates gradually.
Spot gold was up 0.1 percent at $1,206.96 per ounce at 1358 GMT while U.S. gold futures were flat at $1,213.90 an ounce.
Fed chairman Jerome Powell's remarks on Friday did not change market expectations for further monetary tightening despite opposition from President Donald Trump.
But the market interpreted Powell's speech as dovish after he said a gradual approach to raising rates remained appropriate to protect the U.S. economy, keep job growth strong and inflation under control.
That pushed gold up 1.7 percent on Friday in its biggest one-day percentage gain since May 2017.
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But prices remained capped as higher rates, even if they come at a gradual pace, raise the opportunity cost of holding gold, which can be costly to store and insure.
"Our reading is that we still expect two more hikes this year and that should be the important thing near term for gold ... next year the Fed is still likely to continue hiking," said Danske Bank senior analyst Jens Pedersen.
The dollar index, which tracks the U.S. currency against a basket of six major currencies, eased 0.2 percent.
A weaker U.S. currency makes dollar-denominated gold cheaper for holders of other currencies, which could boost demand and prices.
Gains in the Chinese yuan on Monday made gold cheaper for buyers in the world's biggest gold consumer, providing some support for prices.
ActivTrades chief analyst Carlo Alberto De Casa said if prices hold at $1,200 an ounce, there is a good chance of further gains, with a target of $1,230/$1,235.
He said that below $1,200, the bearish trend could recover strength, with a first targeted support area at $1,180.
Hedge funds and money managers increased their net short position in COMEX gold contracts to another record in the week to Aug. 21.
Higher activity in gold options amid geopolitical tensions and a record-long bull market for U.S. equities suggest that investors are betting gold prices have found a floor, traders said.
Among other precious metals, spot silver was steady at 14.80 per ounce, while platinum was up 0.7 percent at $796. Palladium was up 0.9 percent at $944, close to a one-month high.
(Additional reporting by Vijaykumar Vedala in Bengaluru; Editing by Sunil Nair, Kirsten Donovan, Jane Merriman and Adrian Croft)