Gold futures ended modestly higher on Monday as the dollar weakened against most major currencies amid speculation the U.S. Federal Reserve would pause interest rate hikes sometime soon.
Data showing a slower than expected pace of growth in the U.S. services sector also contributed to the dollar's weakness.
The dollar index dropped to 95.21, losing about 0.5%, prompting traders to seek the safe haven of the yellow metal.
However, with equities trending higher amid renewed optimism about a U.S.-China long term trade deal, gold's gains were just modest.
Gold futures for February ended up $4.10, or 0.3%, at $1,289.90 an ounce.
On Friday, gold futures ended down $9.00, or 0.7%, at $1,285.80 an ounce, after having recorded their highest settlement since mid June 2018 a day earlier.
Silver futures for March settled at $15.756 an ounce, down $0.030 from previous close. Copper futures for March ended at $2.637 per pound, down $0.010 from Friday's close.
Data released by the Institute for Supply Management showed growth in U.S. service sector activity slowed by more than anticipated in the month of December. The ISM said its non-manufacturing index dropped to 57.6 in December after inching up to 60.7 in November. While a reading above 50 still indicates service sector growth, economists had expected the index to dip to 59.0.
"The non-manufacturing sector's growth rate cooled off in December," said Anthony Nieves, Chair of the ISM Non-Manufacturing Business Survey Committee. "Respondents indicate that there still is concern about tariffs, despite the hold on increases by the U.S. and China."
Last week, the ISM released a separate report showing a notable slowdown in the pace of growth in U.S. manufacturing activity in December. The purchasing managers index tumbled to 54.1 in December after rising to 59.3 in November, hitting its lowest level since November of 2016. Economists had expected the index to slip to 57.9.
The Federal Reserve Chairman Jerome Power noted last week that the central bank "will be patient" with monetary policy as it watches the economy evolve. Powell stressed that monetary policy is not on a "preset path" after the Fed raised interest rates four times in 2018 and forecast two rate hikes in the new year.
"Particularly with muted inflation readings that we've seen coming in, we will be patient as we watch to see how the economy evolves," Powell said.
The Fed chief said the central bank is always prepared to significantly shift the stance of monetary policy if incoming economic data does not meet expectations.
Markets await the minutes of the Federal Reserve's meeting held in December for clues on the central bank's future plans with regard to rate hikes. The minutes will be released this Wednesday.
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