Gold settled modestly lower on Monday, as the dollar and equity markets fell further following mixed U.S. data, drawing investors to the asset while robust Asian demand also lent support.
Spot gold rose to a three-week peak of $1,248.30 an ounce after a private index of U.S. services industries' activities unexpectedly fell in December, signalling a slowing in overall economic growth at year-end.
But selling picked up rapidly and prices then turned negative before regaining ground again, with traders saying that there may have been a short-lived attempt to re-build short positions after the past few sessions' gains.
Prices were last up 0.3 percent to $1,240 an ounce. U.S. gold futures for February delivery settled 6 cents lower at $1,238.00 an ounce.
Unusually heavy trade volumes rattled U.S. gold futures earlier on Monday, triggering a brief halt while temporarily sending bullion prices down over $30 an ounce, or about 3 percent between 10:14 a.m. and 10:15 a.m. EST.
(Read more: Sudden gold plunge has traders looking for answers)
It was not immediately clear what sparked the volatility, which prompted gold traders to speculate the move was a result of a so-called fat-finger erroneous trade.
CME Group said "all trades stand and our technology performed as designed.'' Frank McGhee, head precious metals dealer at Chicago commodities brokerage Alliance Financial LLC, said some gold traders stood ready to sell after the unusual slide dented buying sentiment.
Analysts remained cautious on gold's current prospects and some said it might retreat during a week filled with events and data releases, after a two-week holiday break.
Chart: Precious Metals
"This is the first day of increased liquidity after the festive break and I wouldn't read much into the gold price moves that we have seen in the past few sessions,'' ABN Amro analyst Georgette Boele said.
"The drivers will remain the same and investor sentiment will also be crucial, of course this week we have the Fed's minutes and the U.S. non-farm payrolls, which will give some market direction and strong numbers should be dollar-supportive and adding pressure on gold.''
Traders will now focus on U.S. nonfarm payrolls and trade numbers on Friday for clues on the strength of the economic recovery, while the minutes of the December Fed policy meeting—at which the central bank decided to cut back bond purchases—may hint at how aggressive the Fed will be with tapering.
Ben Bernanke, who steps down as head of the Fed at the end of January, on Friday gave an upbeat assessment of the U.S. economy in coming quarters, though he did temper the good news in housing, finance and fiscal policies by repeating that the overall recovery “clearly remains incomplete.''
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