Gold eased on Monday after posting its largest daily gain in eight weeks on Friday and while the market did encounter some safe-haven buying on the back of the unrest in Egypt, this was expected to be temporary.

Gold is set for its worst monthly performance since December 2009, driven down by the improving tone of some key US economic data, growing investor confidence and a near-record decline in holdings of metal in exchange-traded funds.

Even a 2.6 per cent fall in the dollar index has not lifted gold, as the traditional negative correlation between the two has reached its most positive since mid-September.

Spot gold was last quoted at $1,332.91 an ounce by 1040 GMT, down 0.4 per cent, having hit four-month lows last week at $1,308.00. US April gold futures were last down 0.6 per cent at $1,334.10.

Scenes in Egypt, where protesters were camped out in central Cairo on Monday, vowing to stay until they had toppled President Hosni Mubarak, have encouraged some safe-haven buying of gold, although this support is unlikely to last long, analysts said.

"What we've seen is (Egypt) has limited the downside more than anything," said VTB Capital analyst Andrey Kryuchenkov.

"Technically, it's still weak, also I think the investment community realises Egypt is probably a temporary thing, something will come out of it, even if no one knows exactly what that will be, more compromise from the government for example."

US President Barack Obama on Sunday urged an "orderly transition" to democracy in Egypt, stopping short of calling on President Hosni Mubarak to step down but signaling that his days may be numbered.

The dollar index fell on Monday, while the euro hit a session high against the dollar after euro zone inflation data for January beat market expectations.

But gold drew little comfort from the decline in the dollar, which usually benefits the bullion market, as its traditional inverse relation to the US currency is still at its most positive in four and a half months.

When the euro zone debt crisis worsened in May last year, gold traded almost in lockstep with the dollar as investors fled the euro. This time around, they appear to be punishing low- or non-yielding assets in favour of equities and riskier currencies.

The world's largest gold-backed exchange-traded fund, SPDR Gold Trust, said its holdings slipped to an eight-month low of 1,224.118 tonnes, reflecting the decline in investor desire for bullion.

Holdings of metal in the trust are set for their second-largest monthly decline since the fund's inception in late 2004, while open interest in COMEX gold futures staged its largest weekly fall since at least 1996, according to last week's Commitment of Traders data.

"We need to see the holdings in ETF start to increase before gold prices can head up and make a new high. Bullion holdings at ETFs are a reflection of longer-term demand for gold," said Ong Yi Ling, investment analyst at Phillip Futures in Singapore.

"Recently, the holdings of gold ETFs have decreased due to optimism in the US economic recovery. If concerns over jobs and unemployment come back to haunt us, then we could see the ETF holding start to increase again."

On the physical market, premiums for gold bars were at their strongest level since at least 2004 on tight supply, short covering before the festive season in India and China as well as physical buying driven by the deadly protests in Egypt.

Silver was flat on the day, having risen earlier to a 1-week high at $28.31, before trading at $27.92.

Platinum was last down nearly 0.5 per cent on the day at $1,784.24 an ounce, while palladium was down 0.9 per cent at $806.47. – Reuters