TOKYO (Reuters) - Gold prices firmed on Monday in a technical bounce after falling to a three-month low late last week, when investors sold commodities on worries about fiscal stability in Greece and the broader euro zone.
Given the euro's bearish outlook despite the Group of Seven's reassurance on Greece at a weekend meeting in Canada, lower risk tolerance by investors is expected to support the dollar and weigh on gains for the precious metal, traders said.
Dollar strength often reflects risk aversion by investors and also makes dollar-priced commodities more expensive for holders of other currencies.
Although hot money was seen behind the recent sell-off in euro assets while bigger investors make cautious moves that do not depart from normal risk aversion patterns, the euro zone crisis has prompted a number of financial firms to revise their predictions for the euro.
"The unwinding of euro long positions from last year is set to continue for a while and is making it difficult for gold to rise further," said Kaname Gokon, deputy general manager at Okato Shoji Co's research section.
Spot gold was mostly flat at $1,065.95 per ounce, compared with New York's notional close of $1,065.55.
U.S. gold futures for April delivery were up 1.2 percent at $1,065.8 per ounce.
On Friday, spot gold fell to $1,043.75, its lowest since November 2.
The euro hit an 8- month low of $1.358 on Friday, and was trading around $1.3636 on Monday.
Euro long positions have been unwound in line with speculative long positions in gold as risk appetite fell in recent weeks, linked to China's credit tightening, concern about proposed trading regulations on U.S. banks and fiscal worries in the euro zone.
The latest data showed noncommercial net long U.S. gold futures positions fell for the third week in a row.
Such positions fell to 210,169 contracts in the week to February 2, down from 211,924 contracts a week earlier, according to the weekly Commitments of Traders report published by the Commodity Futures Trading Commission.
On the charts, gold is vulnerable to extending sharp losses to reach $1,020-1,030 an ounce if support at current levels fails to hold, and may face a deeper retracement below $1,000 if it breaks that level, technical analysts said.
Okato's Gokon echoed that view.
"We should prepare for an exodus of money from gold only if gold breaks through $1,000. But that is when the euro falls toward $1.32 and stock markets sink drastically," Gokon said.
A bright spot was that the holdings by the world's largest gold-backed exchange-traded fund, SPDR Gold Trust, rose 1.828 tonnes or 0.2 percent to 1,106.378 tonnes on Friday, marking the first rise since last December.