Gold erased overnight gains on Monday, pressured by slightly weaker oil prices and a rise in the dollar, but dealers said the metal may strengthen after consolidating around current levels.

Spot gold rose to $649.65 an ounce before falling back to $647.10/647.85 by 1052 GMT, versus $647.00/647.70 in New York late on Friday, when it tumbled $10 because of a higher dollar.

"We had a good run last week but the fact that we didn't manage again to close a week above $650 is disappointing. We haven't seen any convincing move above that level and a lot of profit-taking is going on," said Michael Widmer, analyst at Calyon Corporate and Investment Bank.

"Overall, I would still expect the U.S. to lower interest rates. Then you are back to a weaker U.S. economy, a downward pressure on the dollar and more diversification out of assets that have closer links to economic growth into gold. And these factors should help gold."