Gold futures closed slightly lower Monday, to end July with a gain of about 3%, with metals traders remaining cautious about developments in the Middle East and hashing over what to expect from next week's Federal Reserve monetary-policy meeting

August gold closed down 60 cents at $634.20 an ounce after trading in a range of $627 to $635.80 an ounce.

Tensions in the Middle East remained high after an Israeli air attack on the town of Qana over the weekend left scores of Lebanese civilians dead, including about 40 children.

The bombing sparked global outrage, prompting Israel to suspend its air raids on Lebanon for 48 hours.

"Expectations of a temporary peace continue to be offset by fears of an equally traumatic revenge strike by Hezbollah or its sympathizers on Israel or on Western interests, as well as by the fact that Israeli strikes on Lebanon resumed once again and that Secretary Rice basically went home to the US empty-handed," said Jon Nadler, investment analyst at bullion dealers Kitco.com.

Meanwhile, lingering fears that the Federal Reserve will raise interest rates one more time at its meeting scheduled for Aug. 8 are also pressuring gold, he said.

A key central-bank official, St. Louis Federal Reserve Bank president William Poole, earlier pegged the odds of an Aug. interest-rate hike at 50-50.

In addition, the direction of trading in the dollar helped dictate the action in gold direction last week, which James Moore of TheBullionDesk.com said is "a theme that looks set to continue this week."

August is also the month during which traders expect to see a resumption of physical buying of gold by jewelers as they prepare for the holiday season.

"The gold market is indeed pinning many hopes on continued discretionary and luxury spending by jewelry buyers, in order to feel less dependent on the (fickle) speculative investment buyers who have helped support it for the better part of the current year," said Nadler.

Peter Grandich, editor of The Grandich Letter, said he expects Aug. to be the month in which gold breaks above key resistance between $640 to $660, pushed there by dollar weakness, global political concerns and strong demand.

Other metals prices closed higher.

September silver closed up 0.5 cent at $11.37 an ounce. October platinum rose $7.90 to $1,241.6 an ounce. September palladium rose $3 to close at $317.15. September copper added 2 cents to $3.57 a pound.

Nymex inventories data showed gold at nearly 8.09 million troy ounces as of the close of business on Friday, down from 8.1 million the previous day, while silver stockpiles slipped to 99.8 million troy ounces from 100.6 million.