Gold prices drifted in a narrow range on Monday, but held near the previous session's low, pressured by a firmer dollar and expectations of a series of interest rate hikes by the US Federal Reserve this year and in 2018.

Spot gold was nearly unchanged at $1,276.61 per ounce at 0734 GMT. On Friday, gold dropped 0.7 per cent for its biggest one-day percentage fall since October 26, weighed down by a rise in US Treasury bond yields.

US gold futures for December delivery were up 0.2 per cent at $1,277.10.

“The sell-off (on Friday) underlines the sensitivity of gold to the US yield curve and further emphasises that the safe-haven premium in the gold price is mainly non-existent at the moment,” said Jeffrey Halley, a senior market analyst with OANDA.

“Gold's fate will not be its own as we enter the home stretch of 2017.”

The expectation of an interest rate hike by the Fed next month is keeping gold prices range-bound, said Richard Xu, a fund manager at China's biggest gold exchange-traded fund, HuaAn Gold.

Philadelphia Fed President Patrick Harker said on Monday that he expects to back an interest rate hike next month and expects the central bank in the United States to raise rates three times next year.

“Markets are digesting this news and we don't see much movement in gold prices in the next one or two months,” Xu said.

Higher interest rates tend to boost the dollar and push bond yields up, putting pressure on gold prices by increasing the opportunity cost of holding non-yielding bullion.

Theresa May's fate

The dollar rose as US yields spiked and as the pound stumbled on uncertainty surrounding the fate of British Prime Minister Theresa May's government, although the main investor focus was still on how and when a planned US tax overhaul would pan out.

The head of the House of Representatives' tax-writing committee had said on Sunday he would not accept elimination of a federal deduction for state and local taxes, opposing a proposal from Senate Republicans that would hike taxes for some middle class Americans.

Spot gold is biased to retest support at $1,263 per ounce, a break below which could open the way towards the next support at $1,241, said Reuters technical analyst Wang Tao.

“In lieu of major developments, it is difficult to see gold finding the support necessary for a move back toward $1,300 over the near-term,” MKS PAMP trader Sam Laughlin said in a note.

In other precious metals, silver edged up 0.1 per cent to $16.91 per ounce. Platinum rose 0.3 per cent to $928.49 per ounce and palladium was up 0.2 per cent at $996.25.

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