Gold prices inched down on Thursday as dollar firmed up on upbeat US economic data and hawkish comments from Federal Reserve policymakers which raised the prospects of the central bank sticking to its tighter monetary policy.

About half of the Fed's policymakers, including Chairman Jerome Powell, had used public appearances on Wednesday to show an increasingly unified view that the US economy was not headed for any obvious potholes. Further supporting the dollar was data showing strength in the US job market, with service sector activity racing to a 21-year high in September.

Spot gold inched down 0.1 per cent to $1,196.25 an ounce at 0447 GMT, after falling about 0.5 per cent in the previous session. Prices held to a narrow range between $1,195.36 and $1,198.93 on Thursday. US gold futures were down 0.3 per cent at $1,199.9 an ounce.

“Gold remains heavy due to strong US economic data which supports the emerging hawkish Fed narrative, underpinning the dollar sentiment,” said Stephen Innes, APAC trading head at OANDA in Singapore.

The Fed had raised US rates last week and said it planned four more increases by the end of 2019 and another in 2020, citing steady economic growth and a robust jobs market. Higher interest rates tend to boost the dollar and push the bond yields up, putting pressure on gold prices by increasing the opportunity cost of holding non-yielding bullion.

“The dollar is very strong and putting gold under pressure... People are now buying the dollar,” said Peter Fung, head of dealing at Wing Fung Precious Metals in Hong Kong.

The dollar index marked a fresh six-week peak against its peers on Thursday. Gold prices have fallen for the past six months, losing over 12 per cent, largely due to dollar strength, with the US currency benefiting from a vibrant US economy, rising US interest rates and fears of a global trade war.

Investors are watching out for the US non-farm payrolls data due on Friday. According to a Reuters survey of economists, non-farm payrolls likely increased by 185,000 in September after jumping 201,000 in August.

Spot gold may test a support at $1,193 per ounce, a break below which could cause a loss to the next support at $1,188, while a break above $1,201 could lead to a gain to $1,207, according to Reuters technical analyst Wang Tao.

Meanwhile, the Italian government indicated that it was open to trimming its budget deficit and debt, easing fears about fiscal policy in the euro zone's third-biggest economy, which dented safe haven buying interest for gold.

Holdings in SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, fell 0.84 percent to 23,522,860.09 ounces on Wednesday, the lowest since February 2016.

Among other precious metals, silver little changed at $14.58 an ounce and palladium was flat at $1,055.22. Platinum was down 0.6 per cent to $817.5 per ounce.

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