Gold was hovering near five-week highs on Monday on growing confidence the U.S. Federal Reserve would stick with its bullion-friendly stimulus measures at a policy meeting later this week.
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The Federal Reserve starts its two-day policy meeting on Tuesday and is widely expected to keep its bond-buying stimulus unchanged at $85 billion per month. Most expect the central bank will delay withdrawing stimulus until March 2014.
Spot gold was down 0.1 percent at $1,350.86 an ounce by 1057 GMT. On Friday, the metal hit $1,355.20, its highest since Sept. 20.
U.S. gold futures for December delivery were down just $1.30 an ounce at $1,351.70.
"The longer-term outlook for gold has turned a bit more positive recently because the tapering is not a foregone conclusion considering how the U.S. data has developed over the last couple of months," Saxo Bank senior manager Ole Hansen said.
Bullion has fallen nearly 20 percent this year as investors dumped gold holdings for better-performing equities and on fears that the end of easy money from the U.S. central bank would dim the metal's inflation-hedge appeal.
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In the past two weeks, however, gold has gained about 6 percent as weak U.S. data and budget battles in Washington looked set to deter the Fed from scaling back asset purchases.
The dollar held just above a nine-month low against a basket of currencies, while U.S. Treasury yields edged higher, although remaining well below a peak of 3.0 percent recorded at the beginning of September, when markets still believed the Fed was about to change its policy.
Returns from U.S. bonds are closely watched by the gold market given that the metal pays no interest.
As a gauge of investor sentiment, holdings in the world's largest gold-backed exchange-traded fund, New York's SPDR Gold Shares, fell 4.5 tonnes to 872.02 tonnes on Friday.
Hedge funds and money managers cut bullish bets in futures and options of U.S. gold markets for the week to Oct. 1, a report by the Commodity Futures Trading Commission showed.
Traders were also monitoring physical demand in Asia, where demand has been subdued following a big rush earlier this year. Premiums in India jumped to a record high of $130 an ounce last week as government restrictions on gold imports squeezed supply during the peak holiday season.
India, where gold is considered auspicious and is bought during weddings and festivals, celebrates Diwali and Dhanteras festivals in early November.
"There is little chance we shall see a pronounced buying revival given time constraints before the festival of light marks an end to the traditional pre-holiday bullion purchases by jewellers in the top consumer country," VTB Capital said.
In China, premiums on the Shanghai Gold Exchange fell into negative territory. Premiums were as high as $30 in April-May.
Spot silver rose 0.4 percent to $22.58 an ounce.
Spot platinum was up 0.8 percent at $1,456.99 an ounce on prospects that strikes in South Africa could curb supply.
Spot palladium was unchanged at $739,47 an ounce.