LONDON Gold dipped on Wednesday, losing momentum due to profit taking following a rally in the previous session on U.S. data that weakened the case for a U.S. rate rise soon.
U.S. services sector activity slowed to a 6-1/2-year low in August amid sharp drops in production and orders, pointing to slowing economic growth that further diminished prospects for a near-term interest rate increase.
The U.S. non-manufacturing new orders index for August fell to its lowest since December 2013.
Gold is highly exposed to interest rates and returns on other assets, as rising rates lift the opportunity cost of holding non-yielding bullion.
Spot gold was down 0.2 percent at $1,346.12 per ounce by 0211 GMT. The metal earlier touched a high of $1,352.65, its best since Aug. 19.
U.S. gold futures slipped 0.24 percent to $1,351 per ounce.
A string of disappointing U.S. data since Friday "has thrown a real spanner in the works regarding the next Fed rate hike", MKS PAMP Group said in a note.
"We see more potential upside from here with September now looking highly unlikely for rates to move higher."
Commodities analyst at INTL FCStone Edward Meir said the slower-than-expected data on Tuesday reduced the odds of a rate hike in September to 15 percent probability with a December move still around the 50-55 percent mark.
"There is still some scepticism regarding the timing of rate hike after the data," said Carsten Fritsch, an analyst at Commerzbank.
"The likelihood for a hike in September dropped sharply and the likelihood in December also dropped somewhat and hasn’t risen back to the level before U.S. data."
The dollar index, which measures the greenback against a basket of major currencies was flat while world stocks, which flourish in low interest rate environments, jumped to the highest level in year. [MKTS/GLOB]
Holdings of SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, rose 1.52 percent, its biggest one-day gain since July 5, to 952.14 tonnes on Tuesday from 937.89 tonnes on Friday. [GOL/ETF]
Silver was down 0.5 percent to $19.94 per ounce after touching a more than three-week high of $20.13.
Platinum was flat at $1,096.80 per ounce. It hit a 2-week high of $1,105.80. Palladium was mostly unchanged at $694.50 after touching an over two-week high of $708.40.
(Additional reporting by Nallur Sethuraman in Bengaluru; editing by David Clarke)