Gold rose on Monday after weak Chinese factory data, but the precious metal hovered just above an eight-month low as investors worried that the Federal Reserve may start hinting at plans to raise U.S. interest rates sooner than expected.
Gold prices fell early in the session, but bounced as the S&P 500 equities index edged lower after data showed China's factory output grew in August at the weakest pace in nearly six years.
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Growth in other sectors also cooled, raising fears the world's second-largest economy may risk a sharp slowdown unless Beijing takes fresh stimulus measures.
Investors will watch the Federal Open Market Committee (FOMC) as it starts a two-day policy meeting on Tuesday. Some believe the Fed could signal that it may begin raising rates sooner than mid-2015, the current target for many economists.
"The combination of increased shorts and low volume for gold ahead of the FOMC meeting may indicate that investors have built up expectations for a degree of hawkish tone in the upcoming FOMC statement," said James Steel, chief precious metals analyst at HSBC.
Spot gold was last up 0.4 percent at $1,233.20 an ounce by 3:11 p.m. EDT. Early in the session, it fell to its lowest since January at $1,225.30.
U.S. COMEX gold futures settled up $3.60 at $1,235.10 an ounce.
Support for gold came from lower equities and the unwinding of some short positions built in the past few weeks. Gold is usually considered a hedge against risk, but its price could be pressured if the Fed raises interest rates, giving investors a better return on fixed-income assets.
In the physical gold market, imports in India, the world's second-largest gold user behind China, rose to $2.04 billion in August, up 175 percent from a year earlier.
Silver inched up 0.1 percent at $18.58 an ounce. On Friday, silver touched its lowest since June 2013.
Holdings at the world's largest silver-backed exchange-traded funds (ETFs) rose to a record high as a pullback in prices prompted long-term retail investors to increase purchases of the precious metal.
Platinum fell 0.2 percent to $1,357.25 an ounce, while palladium was down 0.2 percent at $831.75.
(By Frank Tang and Clara Denina; Additional reporting by A. Ananthalakshmi in Singapore; Editing by Keiron Henderson, David Goodman and David Gregorio)