Gold would suffer from higher interest rates because they would increase the opportunity cost of holding the metal.
"The price of gold is vulnerable to one last dip if, as we anticipate, the Fed presses ahead with a first hike in U.S. interest rates soon," said Capital Economics in a note.
"But we remain positive on the medium-term prospects for the precious metal, as shown in our end-2015 and end-2016 forecasts of $1,200 and $1,400 respectively."
The dollar fell 0.4 percent against a basket of leading currencies.
"As long as the Chinese growth anxieties are there, the Fed will have to find some other remedy for their itching to raise the interest rate," said Naeem Aslam, chief market analyst at AvaTrade.
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Doubts over whether the Fed will raise rates at its Sept. 16-17 policy meeting have resurfaced in light of persisting market turbulence in recent weeks.
The dovish president of the Boston Fed, Eric Rosengren said that the central bank will probably only gradually raise interest rates, irrespective of whether it decides to take the first step a few months earlier or later.
While the biggest focus of the week is the August non-farm payrolls report due on Friday, investors noted U.S. factory activity braked to a more than two-year low in August.
"The importance of this week's employment report is somewhat elevated given the lack of clearer signals from the recent Jackson Hole symposium - comments from Vice Chairman Fischer seemed to focus on trying to keep the Fed's options open," UBS said in a note.