Gold edged lower on Monday as the dollar firmed, but stock market volatility and chances of a slower pace of U.S. interest rate hikes in 2019 kept bullion close to a 5-month peak scaled earlier in the session.
Spot gold was down 0.4 percent at $1,242.82 per ounce at 2:54 p.m. EST, having touched $1,250.55, its highest since July 11. U.S. gold futures for February delivery settled at $1,249.40 per ounce, down $3.20.
"Yields are correcting a bit higher in the front end and the dollar is drifting higher. So in the absence of significant buying, gold is coming off," said Tai Wong, head of metals derivatives trading at BMO.
The dollar rebounded after posting its biggest weekly drop in more than three months last week as weak U.S. data reduced expectations of more U.S. interest rate increases.
The U.S. Federal Reserve is widely expected to raise rates at its Dec. 18-19 meeting, but the focus will be on how many hikes will follow in 2019.
Gold tends to gain when rate hike expectations recede as lower rates reduce the opportunity cost of holding non-yielding bullion and weigh on the dollar, in which it is priced.
Meanwhile, losses on global stocks snowballed on Monday as fresh signs emerged that the U.S.-China trade spat was taking a deeper toll on world economic growth.
"It's really encouraging that gold has risen to the $1,250 level at the same time when equities were soft and this really underpins gold's role as a safe haven," said Julius Baer analyst Carsten Menke.
Gold rose more than 2 percent last week, its best performance since the week of March 23 and has recovered about 8 percent from a 19-month low of $1,159.96 in mid-August.
"With gold prices trading above the $1,240 per ounce resistance, we think that this breakout could have staying power," analysts at TD Securities wrote in a note.
"A change in tone by the Fed, combined with continued deterioration in sentiment with regards to U.S. growth that could continue to weigh on the dollar, should see the yellow metal supported."
Reflecting investor interest in bullion, holdings in SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, rose 0.20 percent to 759.73 tonnes on Friday.