By Jan Harvey
LONDON (Reuters) - Gold retreated on Monday as last week's rally ran out of steam, with focus switching to a U.S. presidential debate later in the day which could prove a key pointer to the outcome of November's election.
The metal ended Friday little changed but up 2 percent week-on-week, its biggest weekly gain in nearly two months. That was driven chiefly by the cautious tone on interest rates adopted by the Federal Reserve after its policy meeting on Wednesday.
It struggled to build on those gains later in the week, however, as uncertainty over the outlook for U.S. monetary policy and sluggish demand for physical metal in Asia kept a lid on gains.
Spot gold was at $1,335.53 an ounce at 0930 GMT, down 0.1 percent, while U.S. gold futures for December delivery were down $1.90 an ounce at $1,339.80.
"Gold remains stuck in a relative tight range for a third day," Saxo Bank's head of commodity research Ole Hansen said. "Demand from hedge funds and investors ... has been absent in recent weeks. This despite a benign U.S. rate outlook, Trump gaining in the polls, and a weaker dollar and stock market weakness today driven by losses in the banking sector."
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U.S. Commodity Futures Trading Commission data showed on Friday that hedge funds and money managers cut their net long position in COMEX gold for the second straight week in the week to Sept. 20. [nL2N1BZ1NA]
"Underlying support remains, but having traded sideways for the past three months, investors have become cautious," Hansen added. "A technical break above $1,346 would force a response and the strength of that would indicate whether it's onwards and upwards, or back down to test support."
Stock markets declined in Europe and Asia, tracking losses on Wall Street, as appetite for assets seen as higher risk was blunted by the looming U.S. presidential debate and uncertainty around oil prices ahead of an informal OPEC meeting. [MKTS/GLOB]
The first face-off between Republican Donald Trump and Democrat Hillary Clinton will take place at 0100 GMT on Tuesday, with investors looking for indications of who could win the race to lead the world's biggest economy. [nL2N1BY0WZ]
"With Trump closing the gap with Clinton, the uncertainty is likely to keep gold underpinned," MKS said in a note.
Weakness in risk appetite weighed on the more industrial precious metals, along with stocks and oil. Platinum was down 1.2 percent at $1,038 and palladium was 1.1 percent lower at $692.30 per ounce.
Silver was 1.2 percent lower at $19.42 an ounce.
(Additional reporting by Swati Verma and Nallur Sethuraman in Bengaluru; Editing by Mark Potter)