Expectations for a rise in U.S. rates this year, which would lift the opportunity cost of holding gold while boosting the U.S. dollar, pushed the metal to a 5-1/2-year low of $1,077 last month.  A rate increase will be dependent on the strength of U.S. data. The dollar briefly retreated and gold strengthened after a report on Monday showed manufacturing activity in New York state plunged in August to its weakest since 2009.  "The likelihood of a September hike has dropped to roughly 40 percent from almost 50 percent in the morning," Commerzbank analyst Carsten Fritsch said. "We expect gold to remain capped before the first rate hike, which we expect for September. Not too far after the first rate hike, gold should start to rise."  Minutes from the Fed's July 28-29 meeting to be released on Wednesday will offer clues about its plan to boost rates for the first time since 2006.  Read MoreListen up, gold bugs: HSBC predicts a year-end recovery  Relief over stability in China's yuan exchange rate helped European stocks bounce back from their worst week in six, though concerns over the implications continued to support gold.  "We are of the view that this latest bounce is merely a counter-trend move inside a larger bearish cycle," said Fawad Razaqzada, technical analyst for Forex.com.  "Indeed, gold is heading towards some key resistance levels where the metal may resume its long-term bearish trend."  A filing showed on Friday that hedge fund Paulson & Co cut its stake in the world's biggest gold-backed exchange-traded fund in the second quarter.  Hedge funds and money managers cut their net short position in COMEX gold contracts in the week to Aug. 11 but short positions remain "crowded", Barclays Capital said in a note.
Gold firmed on Monday, building on its biggest weekly rise in three months, buoyed by weaker-than-expected U.S. data and uncertainty over China.