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LONDON (Reuters) - Gold eased below $1,620 an ounce on Monday, taking its cue from a weaker euro ahead of key central bank meetings this week, as investors weighed up the prospect of the European Central Bank taking fresh measures to combat the euro zone debt crisis.
The metal climbed 2.5 percent last week, its best weekly performance in eight, after ECB President Mario Draghi pledged to do whatever necessary to prop up the euro.
But caution ahead of the ECB's meeting on Thursday, which will be watched for signs that Draghi's pledge will be backed with action, has since pulled the metal off its highs, though it remains supported just below $1,620 an ounce.
Spot gold was down 0.3 percent at $1,618.09 an ounce at 7:14 a.m. EDT (1114 GMT), while U.S. gold futures for August delivery were down 40 cents an ounce at $1,617.60. Spot prices are on track for a 1.3 percent gain in July.
"The market will be very disappointed if Draghi doesn't deliver," Commerzbank analyst Daniel Briesemann said. "The expectations for the upcoming ECB meeting are very high, and he must say something really significant.
"If he fails to do so, we will probably see lower commodity prices across the board, due to a stronger U.S. dollar."
Gold stayed under pressure on Monday as the euro fell 0.7 percent against the dollar, with traders taking profit on last week's gains.
The metal has been held in check this year by losses in the euro and consequent gains in the dollar, which make assets priced in the U.S. currency more expensive for other currency holders and curb gold's appeal as an alternative holding.
Better appetite for risk was reflected in the wider financial markets, however, with European shares extending early gains to four-month highs and German Bund futures staying close to three-week lows on expectations the ECB could be preparing bold measures to cut high Italian and Spanish borrowing costs.
Euro-priced gold, which has outperformed dollar gold this year, was up 0.3 percent at 1,321.32 euros an ounce.
While the wider markets set gold's direction, underlying demand for the metal remained soft. Buying in major consumer India was lackluster as high prices, exacerbated by weakness in the rupee, kept local buyers on the sidelines.
The world's biggest gold-backed exchange-traded fund (ETF), New York's SPDR Gold Trust (GLD.P), reported a fifth consecutive weekly outflow from its holdings on Friday, its longest such run of losses in about 18 months. The fund was on track for its biggest monthly outflow this year in July, of 30.9 metric tons (34.06 tons).
ETFs, which issue securities backed by physical metal, have proved a popular investment vehicle in recent years.
Meanwhile, hedge funds and money managers trimmed their net long position by about 25 percent in U.S. gold futures and options in the week to July 24 as slumping bullion prices prompted investors to reduce their bullish bets.
"Right now, it's clear that sentiment is clearly turning in gold's favor," UBS said in a note. "But it's also clear that despite last week's inflow of fresh longs, some hesitancy abounds."
"A much bigger pool of investors, while starting to pay attention to gold again, are biding their time before getting long. Investors are playing the waiting game, looking for the signal to get back in."
UBS said that the signal for most investors would be U.S. quantitative easing (QE). Further monetary easing would maintain pressure on long-term interest rates, keeping the opportunity cost of holding gold at rock bottom and pressuring the dollar.
A meeting of the Federal Reserve this week will also be watched, but few expect concrete clues on QE this time around.
Among other precious metals, silver was down 0.2 percent at $27.68 an ounce, though gold's rise put it on track for its first monthly gain in five. Its run of four straight monthly losses to June was its longest such streak since 2000.
Spot platinum was down 0.1 percent at $1,401.49 an ounce. Spot palladium bucked the trend to rise 0.8 percent to $576.75 an ounce.
Editing by Jane Baird and Keiron Henderson