Gold settled nearly 2 percent higher on Monday after a worse than expected U.S. manufacturing report weighed on the dollar and global equities, while persisting concerns about emerging markets bolstered some investor flight to safety.
The Institute for Supply Management (ISM) said its index of national factory activity fell to its lowest level since May 2013 at 51.3 last month, from a recently revised 56.5 in December.
Spot gold jumped to a session high of $1,266.10 an ounce and was last up 1.3 percent to $1,257 an ounce.
Bullion snapped five weeks of advances last week, falling 2 percent, but posted a 3.2 percent gain in January for the first monthly increase in five, owing to weakness in global equities gripped by concerns over emerging economies.
U.S. gold futures for April delivery settled 1.6 percent higher at $1,259.90 an ounce.
Emerging markets, economic growth in the United States and the U.S. Federal Reserve's move to taper monetary stimulus remain crucial to the metal's moves in the short term, analysts said.
"There is a bit of deterioration in risk appetite, which has given support to gold," ABN Amro's Georgette Boele said. "But in the long run, a stronger dollar and better U.S. economy should drag gold prices lower and the strength we are seeing at the moment should still be regarded as a selling opportunity."
The dollar index, which recorded its best monthly gain in eight months in January, extended losses to 0.3 percent against a basket of currencies after the U.S. data.
Chart: Precious Metals
Global shares slipped, also undermined by data showing China's economy losing momentum, while growing pressure for another policy easing in Europe shoved the euro to two-month lows against the dollar.
The focus will now turn to Friday's U.S. non-farm payrolls report.
"I think one of the concerns that we have for the emerging markets is the impact on advanced nations, but ... there is a lot of data this week, and if you get strength there, that's supportive for the dollar," BofA Merrill Lynch analyst Michael Widmer said.
As a gauge of investor interest, hedge funds and money managers raised their net long positions in gold futures and options for a fifth consecutive week and cut their long positions in silver in the week to Jan. 28, data from the Commodity Futures Trading Commission showed on Friday.
Markets in China, the world's biggest buyer of bullion, are closed until Friday, while Hong Kong, a major trading hub, was shut on Monday.
Shanghai premiums for gold bars over the London spot price had fallen to $4 an ounce just before the holiday, from more than $20 at the beginning of the month, indicating a drop in buying interest.
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—By Reuters