Gold slipped to a one-week low on Tuesday as investors sought the U.S. dollar after weak data in China, although rising expectations for a pause in interest rate increases by the U.S. Federal Reserve limited losses.
Spot gold dropped 0.4% to $1,930.44 per ounce by 0941 GMT, eyeing its biggest daily decline since mid-August. U.S. gold futures fell 0.6% to $1,956.20.
Making gold more expensive for other currency holders, the dollar gained 0.4% to a more than three-month high after data showed China's services activity expanded at the slowest pace in eight months in August.
However, the drop in the price of gold was limited by hopes that interest rate increases may be ending.
"The expectation for a dovish Fed in September is capping the downside for gold," said Carlo Alberto De Casa, market analyst at Kinesis Money.
Recent U.S. economic data has backed bets of a soft landing as worries about inflation and recession have eased, cementing expectations that the Fed might not have to raise interest rates further.
According to the CME FedWatch tool, traders see a 93% chance of the Fed leaving rates unchanged at a Sept. 19-20 policy meeting, and about a 60% chance that rates would remain at current levels for the rest of the year.
Gold, which yields no interest, tends to lose its attraction when interest rates rise. A focus will also be on comments by Fed officials who are expected to speak during the week.
"Gold seems to be searching for a fresh fundamental catalyst to trigger its next significant move," Lukman Otunuga, senior research analyst at FXTM, said in a note.
"In the meantime, the precious metal is showing signs of exhaustion on the daily charts with weakness below the 50-day SMA opening a path back toward $1,920."
Spot silver shed 2% to $23.48 per ounce, logging its biggest daily drop in a month.
Platinum dipped 1.3% to $941.20 and palladium eased 0.9% to $1,210.42.