By Eric Onstad
LONDON (Reuters) - Gold was steady on Monday and likely to see further gains after the dollar slumped to multi-month lows on the back of data that pointed to weak U.S. inflation and less prospect of rate hikes.
"The dollar continues to be on the back foot and yields have dropped back somewhat from their relatively elevated positioning lately," said analyst Jonathan Butler at Mitsubishi in London.
Spot gold was up 0.2 percent to $1,230.51 per ounce at 1006 GMT while U.S. gold futures for August delivery rose 0.2 percent to $1,229.70 per ounce.
"If gold remains at $1,230 or goes higher, there's an elevated risk that some of those short positions might start to be reversed and that would give some further upside to gold," Butler added.
Recent soft U.S. inflation and domestic demand figures undermined arguments for the U.S. Federal Reserve to raise interest rates, with traders cutting back their bets on the likelihood of an increase in December.
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The U.S. dollar nursed losses at a 10-month low against a basket of currencies on Monday as investors cheered upbeat Chinese data by piling into leveraged positions such as the Australian dollar and other high-yielding currencies.
A weaker greenback supports gold since the dollar-priced commodity is less expensive for investors holding other currencies.
China's economy expanded faster-than-expected in the second quarter, setting the country on course to comfortably meet its 2017 growth target.
"Investor sentiment (for gold) has improved quite dramatically over the past week, especially with the weak data out of the United States last week," said ANZ analyst Daniel Hynes. "Gold is now primed for another rally."
On the technical front, gold is likely to significantly break above key resistance at the 200-day moving average near $1,230 per ounce and could even rise to the $1,250 level in the shorter term, Hynes said. "The technical bounce looks fairly solid," he said.
Spot gold may gain further to $1,239 per ounce, as it has cleared resistance at $1,226, according to Reuters technical analyst Wang Tao.
Among other precious metals, spot silver rose 0.6 percent to $16.05 per ounce, after hitting $16.09, the highest in over a week, earlier in the session.
Platinum was up 0.9 percent at $923.50 per ounce after touching its highest in two weeks at $925.60.
Palladium shed 0.4 percent to $854.50 per ounce.
(Additional reporting by Arpan Varghese in Bengaluru, editing by Pritha Sarkar)