Gold prices edged higher in European trade on Monday, extending last week's strong gains on bets that lackluster U.S. data will keep the Federal Reserve cautious about the future pace of policy tightening.

Comex gold futures were at $1,230.06 a troy ounce by 3:55AM ET (0755GMT), up $2.55, or around 0.2%. It touched its highest since July 3 at $1,232.70 in the prior session.

Prices logged a gain of about 1.5% last week, as dovish comments from Fed Chair Janet Yellen combined with soft inflation data saw investors temper their expectations for tighter monetary policy in the U.S. in the months ahead.

Futures traders are pricing in less than a 40% chance of a rate hike by the end of the year, according to Investing.com’s Fed Rate Monitor Tool, down from around 50% a week earlier.

The dollar index fell to its lowest since September in overnight trade, before bouncing back modestly.

Economic reports will remain important in the week ahead as market players gauge the strength of the world's largest economy and how it will impact the Federal Reserve's view on monetary policy.

This week's calendar features data on the U.S. housing sector, as well as surveys on manufacturing conditions in the Philadelphia and New York regions and weekly jobless claims.

The Fed hiked rates at its June meeting and stuck to its forecast for one more rate hike this year, but the subdued inflation outlook has since raised doubts over whether the U.S. central bank will be able to stick to its planned tightening path.

The precious metal is sensitive to moves in U.S. rates, which lift the opportunity cost of holding non-yielding assets such as bullion.