Gold prices edged down slightly in choppy trade on Monday as investors looked ahead to the U.S. Federal Reserve policy meeting this week amid expectations of a slowdown in rate hikes.
Spot gold inched 0.2% lower to $1,924.05 per ounce by 1:40 p.m. ET. U.S. gold futures settled down 0.3% to $1,922.9.
"The way that the Fed pitches that story will reflect in the gold market," said Daniel Pavilonis, senior market strategist at RJO Futures.
"The bigger picture here is that if the Fed slows down on rates, inflation comes roaring back. If the Fed pauses for a little bit and inflation is still there - I think in that scenario gold would take off."
The 25-basis-points rate increase expected at the Federal Open Market Committee's Jan. 31-Feb. 1 meeting would bring the policy rate to the 4.5%-4.75% range, short of the 5% plus level most Fed policymakers were vouching for.
Gold, which pays no interest, tends to benefit when interest rates are low as it reduces the opportunity cost of holding bullion.
Expectations for a slowdown in Fed rate hikes grew after the Fed's preferred inflation gauge - U.S. consumer spending - fell for a second straight month in December, putting the economy on a lower growth path heading into 2023.
However, the number of people filing for jobless benefits keeps dropping - signalling a tight labour market that could force the Fed to keep hiking rates.
Meanwhile, benchmark U.S. 10-year bond yields were hovering near two-week highs, while the dollar was up 0.2%, making gold more expensive to holders of foreign currencies.
"A hawkish surprise from the Fed could see prices slip back towards $1,900 in the short term," said Michael Hewson, chief market analyst at CMC Markets, in a note.
Spot silver rose 0.1% to $23.59 per ounce and platinum gained 0.2% to $1,014.38, while palladium jumped 1.4% to $1,641.05.