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Gold prices bounced back on Monday as the dollar trimmed its initial gains that were driven by bets that OPEC's surprise output cuts could jack up global energy prices and force central banks to hike interest rates.

Spot gold rose 0.5% to $1,977.43 per ounce by 1206 GMT. U.S. gold futures gained 0.4% to $1,994.50.

Earlier in the session, gold touched a one-week low of $1,949.54.

That seemed to be a "knee jerk reaction" to the dollar's initial rise, also triggering some bargain hunting around the $1960-$1965 levels, said StoneX analyst Rhona O'Connell.

"You'd have thought in the longer term, it might be supportive because OPEC has introduced some uncertainties or fresh uncertainties into the marketplace," she added.

The dollar trimmed its initial gains, making gold cheaper for traders holding other currencies, as investors focus on diverging central bank policy, with the impact of oil production cuts complicating the inflation outlook. [US/]

While gold is traditionally considered a hedge against inflation, higher interest rates to rein in rising price pressures dim appeal for the asset since it pays no interest.

CME's Fedwatch tool showed markets see a 59.3% chance of the Federal Reserve hiking rates by a quarter point in May, while markets see a 66% chance of a further 25 bp hike by the Bank of England in May.

"Gold is now vulnerable to a move down to $1,900, given the potential for a higher terminal Fed rate that markets are currently pricing in," said Matt Simpson, senior market analyst at City Index.

Bullion rose by nearly 8% last quarter after the global banking turmoil drove bets that the Fed would slow its rate hikes.

Silver fell 0.3% to $24.01 per ounce, platinum was also down 0.3% to $988.60 while palladium rose 0.7% to $1,470.72.