By Jan Harvey
LONDON (Reuters) - Gold retreated on Monday from a three-week high after the dollar was lifted by upbeat U.S. jobs data from Friday that reinforced the view the U.S. Federal Reserve will raise interest rates next week.
A short-covering rally had swept the precious metal higher after the jobs data, which at first failed to lift the dollar significantly. Gold ended Friday up 2.3 percent, its biggest one-day rally since January, but failed to hold those gains.
Spot gold was down 0.4 percent at $1,082.09 an ounce at 1246 GMT, while U.S. gold futures for February delivery were down $2.30 an ounce at $1,081.80. On Friday, it touched its highest since Nov. 16 at $1,088.70.
Typically, robust U.S. data would have sent gold lower as it would support the case for a rate increase, which would lift the opportunity cost of holding non-yielding assets such as bullion.
"The move in gold on Friday was a bit surprising, but the dollar didn't move a lot higher despite the good numbers," ABN Amro analysts Georgette Boele said. "The market ... wants to see that the Fed is really going to hike rates."
"Option market probabilities haven't increased for the Fed to hike in December," she said. "People are just being cautious ... but if they really hike in December, it will still be negative for gold."
Gold prices have fallen 8.5 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.
"While the Fed's decision is shaping as somewhat of a done deal, how the market reacts to a Fed hike still contains an element of uncertainty," ANZ said in a note. "The logical reaction may not be what transpires, at least not initially."
Central bank data from China on Monday, 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.
Hedge funds and money managers raised their net short position in COMEX gold futures and options to 17,949 contracts in the week to Dec. 1, according to U.S. Commodity Futures Trading Commission data on Friday.
Silver was flat at $14.55 an ounce, platinum was down 0.7 percent at $873 an ounce, and palladium was down 0.9 percent at $558.60 an ounce.
Platinum rallied 4.3 percent on Friday, its biggest one-day rise in five years.
(Additional reporting by A. Ananthalakshmi in Singapore; editing by David Clarke and Susan Thomas)
