Gold settled modestly lower on Thursday, as investors booked profits after the previous session's gains due to uncertainty about a partial U.S. government shutdown and slow demand in key physical markets
It rose 2.2 percent on Wednesday, posting the biggest daily gain in two weeks, as the dollar fell to an eight-month low and no end appeared in sight to the shutdown.
Failure to increase the debt limit would push the world's biggest economy into default and shake markets, already on edge over the outlook for U.S. stimulus measures.
Spot gold rose 0.2 percent to $1,318 an ounce, having cut heavier losses seen earlier in the session following the release of U.S. data, while for December delivery settled $3.10 lower at $1,317.60 an ounce.
Chart: Precious Metals
"Prices cut losses after the U.S. data but ...I think the big news is going to be the October 17 meeting for the U.S. budget talks," Natixis analyst Bernard Dahdah said.
"Prices are likely to fluctuate ahead of that as investors will be betting on whether there is going to be a solution or not."
The Institute for Supply Management (ISM) said on Thursday its services index fell to 54.4 in September from 58.6 in August which was the highest since December, 2005.
This follows Wednesday's weaker-than-expected ADP jobs data, which catapulted gold higher.
Investors will continue to watch U.S. economic numbers, although many federal agencies have stopped collecting and publishing economic data due to the shutdown and the widely-awaited non-farm payrolls report will not be released on Friday.
The lack of official data on the economy could further delay a reining in of stimulus, Eric Rosengren, head of the Federal Bank of Boston, said on Wednesday.
For more information on precious metals, please click here.