President Donald Trump and US congressional leaders agreed on Monday on a two-year extension of the debt limit and federal spending caps to avert a government default this year but adding to budget deficits in the world's largest economy.

Spot gold fell 0.4% to $1,418.39 per ounce as of 1013 GMT. Prices had dropped to $1,413.80 earlier in the session, last touched on July 17.

US gold futures dropped 0.6% to $1,419.

"We're seeing a slightly stronger dollar and also news on the political front in the US ... created a bit of an opportunity for profit taking," said Capital Economics analyst Ross Strachan, adding prices could soften in the near term.

"You've seen a sharp upward move over the past weeks in gold. The momentum seems to have been lost and some short-term investors have looked to take those healthy profits ahead of the US Federal Reserve decision next week," Strachan said.

The greenback rose 0.3% versus a basket of its rivals to 97.56, its highest level since July 9.

The Fed is seen as certain to cut its benchmark rate at its July 30-31 meeting. The European Central Bank (ECB) is also expected to signal easier monetary policy when it meets on Thursday.

In Britain, some investors worry Boris Johnson, expected to be the next prime minister, could pull Britain out of the European Union on Oct. 31 without a trade deal, in a bid to appease anti-EU members of his Conservative Party.

Despite underlying support, analysts say gold could post losses in the coming days. Gold may fall into a range of $1,401-$1,409 per ounce as it has broken a support at $1,422, said Reuters technical analyst Wang Tao.

Meanwhile, silver stood out from its peers, rising 0.5% to $16.42 an ounce.

"You've seen a rapid increase in silver Exchange Traded Fund (ETF) holdings. I think it's very much a function of how low the price was and that it's getting picked up on positive investor sentiment for safe havens such as gold and silver," Strachan said.

Holdings of the largest gold-backed ETF, New York's SPDR Gold Trust, rose 0.6% on Monday from Friday, while the largest silver-backed ETF, the iShares Silver Trust, rose 2.6% during the same period. Holdings in the silver ETF have risen about 10% so far this month.

Among other precious metals, palladium dipped 0.7% to 1,518.01 per ounce while platinum fell 0.3% to $841.50.