Gold inched up on Monday, reversing losses from the previous session on signs U.S. lawmakers were making progress towards an agreement on raising the country's borrowing limit to avoid a debt default.
Spot gold rose 0.3 percent to $1,688.21 an ounce by 0043 GMT, after gaining 1.3 percent in the previous week.
U.S. gold was little changed at $1,688.30.
U.S. House Republican leaders on Friday said they would seek to pass a three-month extension of federal borrowing authority next week to buy time - on pain of losing their own paychecks - for the Democratic-controlled Senate to pass a budget plan that shrinks budget deficits.
U.S. Senate Democrats for the first time in more than three years will pass a budget, a senior Democratic lawmaker said on Sunday, fulfilling a basic task that Republicans have been urging them to do.
U.S. consumer sentiment unexpectedly deteriorated for a second straight month to its lowest in over a year in January, with many consumers citing fallout from the recent "fiscal cliff" debate in Washington, a survey released on Friday showed.
Italy's central bank cut its forecast for the country's shrinking economy on Friday, as tight credit conditions and a gloomy international backdrop darken the domestic outlook before a national election in February.
Speculators raised their net long positions in U.S. gold futures and options by 8 percent on the week to 99,458 contracts in the week ended Jan. 15, said U.S. Commodity Futures Trading Commision. Net length in silver also increased.
The Dow and S&P 500 closed at five-year highs on Friday as the market registered a third straight week of gains on a solid start to the quarterly earnings season.
The yen sank to a fresh 2-1/2 year low against the greenback on Monday with investors giving the currency a wide berth in the lead up to a Bank of Japan meeting that could see the central bank commit to aggressive reflationary policy.