Spot gold was bid at $1,124.50 an ounce by 3:55 p.m. EST (2055 GMT), against $1,113.85 late in New York on Friday.

U.S. gold futures for February delivery on the COMEX division of the New York Mercantile Exchange finished $3.90 higher at $1,123.80 an ounce.

A decline in the dollar tends to lift assets like dollar denominated gold in markets outside the U.S.

But participants added that gold is awaiting fresh direction from the wider markets after posting a sharp fall last week, which depressed prices nearly 10 percent from the record $1,226.10 an ounce they hit in early December.

The dollar decline helped stem the selling pressure. But the jury is still out on where the next near-term move will be for gold. For now, it's nap time, said George Nickas, metals broker at FC Stone in New York.

The euro edged up against the dollar as Abu Dhabi's decision to throw neighboring emirate Dubai a $10 billion lifeline to repay debts slowed safe-haven buying that boosted the U.S. currency last week.

Abu Dhabi's move prompted investors to sell the dollar and buy stocks on improved risk appetite, even as lingering concerns over debt woes outside Dubai capped euro gains.

Stock markets have recovered and that indicates that at least a little more risk taking is coming back into the market, said Peter Fertig, a consultant at Germany's Quantitative Commodity Research.

That is usually positive for gold via the U.S. dollar, because more risk taking means investors are shifting out of the safe-haven dollar into risky assets.

FED EYED

Traders are awaiting comments from the Federal Reserve on the state of the U.S. economy later this week. The Fed is due to complete its final policy meeting of the year on Wednesday.

The U.S. central bank is likely to keep interest rates unchanged near zero, but the focus will be on the accompanying statement and whether the Fed adds to recent hints that rates will remain depressed for the foreseeable future.

A change in investment trends also unsettled some analysts. Holdings of the world's largest gold exchange-traded fund fell 13.7 tonnes in the week to Friday, reflecting a 4 percent dip in the price of spot gold in the same period.

London's ETF Securities said holdings of its gold-backed exchange-traded products fell just over 38,000 ounces or 0.5 percent last week, while Zurich Cantonal Bank's gold ETF saw an outflow of 64,635 ounces or 1.3 percent.

A recent switch in investment activity to futures markets as purchasing of exchange-traded product buying has slowed ... (suggesting) that the risk of liquidation has grown since futures holders tend to be less committed than ETP buyers, Barclays Capital said in a weekly note.

Noncommercial net long U.S. gold futures positions hit record highs recently but a weekly report by the U.S. Commodity Futures Trading Commission showed they fell to 254,429 lots in the week to December 8 from 259,064 lots.

Silver was bid at $17.34 an ounce in late New York business against $17.11 previously, tracking gains in gold. Platinum rose to $1,445.50 an ounce against $1,426, while palladium was at $364 against $357.50.

With the gold:silver ratio at 65...silver remains a compelling buy at these levels and will likely be the surprise outperformer in 2010, as it was in 2009, bullion dealer GoldCore said in a note.

Germany Dubai Gold Investment