Gold prices edged higher as data showing the US manufacturing sector may be struggling to gain traction put pressure on the dollar, but gains were capped by uncertainty over the outcome of US budget talks.
The dollar fell half a per cent against the euro, extending losses after data showed USmanufacturing unexpectedly contracted in November. A weak dollar makes assets priced in the US unit cheaper for other currency holders.
Spot gold was up 0.1 per cent to $1716.10 an ounce, while USgold futures for February delivery rose $4.90 an ounce to $1717.60.
"We have a bit of a downside in ISM data compared with expectations, which signals the US economic recovery will not be roaring away," said Ole Hansen, Saxo Bank vice-president.
"That, combined with a lack of response to a weaker dollar since Friday, gave gold a bit of a boost." US stocks pared gains and the Dow turned negative after the manufacturing data, helping pull gold off its earlier highs above $1721 an ounce, while prices on US government debt pared losses.
Attention is now shifting to negotiations over the approaching US fiscal cliff, a $US600 billion in tax hikes and spending cuts that will automatically start in early January.
Gold buyers in India, the world's biggest bullion consumer, continued to stock up on the metal as prices hovered around their lowest in a month despite Monday's gains.
"Deals were there in the morning, like last week, as gold prices and the rupee are in supportive mode," one dealer with a private bullion-importing bank in Mumbai said.
Underscoring investors' interest in the metal, holdings of gold-backed exchange-traded funds hit a record high, and speculators raised their net length in gold for the third straight week.
Spot silver was up 0.8 per cent at $33.64 an ounce, while the gold/silver ratio, which measures the number of silver ounces needed to buy an ounce of gold, was at 51.3, having touched an eight-month low on Friday at 50.4.
Spot platinum inched down 0.3 per cent to $1595.20 an ounce, and palladium was at $683 per ounce, up 0.9 per cent.
Platinum group metals, which are chiefly used in autocatalysts, are heavily exposed to trends in car buying as a source of demand.
The world's biggest carmaker, Toyota, said on Monday its sales in China fell 22.1 per cent last month, highlighting the lingering impact of a territorial row between China and Japan.
However, Toyota said its US sales rose 17 per cent in November from the previous year, while Ford said its November U.S. auto sales will rise about 10 percent year-on-year.