Gold steadied early on Thursday as a rally in the US dollar showed signs of fatigue after the currency hit its highest in nearly 14 years against a basket of currencies the day before.
Spot gold was up 0.2 per cent at $1,227.25 an ounce at 0231 GMT, after dropping 0.25 per cent in the previous session. US gold futures rose 0.27 per cent to $1,227.20 an ounce.
The dollar index, which measures the greenback against a basket of major currencies, slipped 0.12 per cent to 100.290, as moderate US inflation data drove a flattening of the US Treasury yield curve. The index climbed to 100.57 on Wednesday, which was its highest since April 2003, after a week-long rally mainly driven by the post-election surge in U.S. bond yields as traders bet the Trump administration will adopt inflationary policies.
"The dollar was higher and gold was sold. Now, the dollar has given away gains and gold is steady,” said Yuichi Ikemizu, head of commodity trading at Standard Bank in Tokyo.
"It has found a bottom around $1,220 and looks firm.”
"We need something for gold to follow. At this moment there is nothing supporting movement and investors are sidelined," Ikemizu added. St. Louis Fed President James Bullard said on Wednesday that the Fed would hike US interest rates in December barring any major shocks.
Philadelphia Fed President Patrick Harker said he favoured raising interest rates and that the U.S. central bank might have to hike more aggressively if the incoming Trump administration enacts fiscal stimulus.
Financial markets expect the Fed to hike next month and have begun pricing in a much more aggressive run of rate increases after Trump promised during campaigning for the Nov. 8 election to boost the U.S. economy with spending on infrastructure.
"Since the gold market has absorbed the likelihood of a December rate rise, we do not think Mr. Bullard's rate comments were especially price-negative,” said James Steel, chief metals analyst for HSBC Securities.
Gold is highly sensitive to interest rates. Spot gold has failed to break resistance at $1,235 per ounce and may consolidate below this level, which is above support at $1,210 for one or more days, according to Reuters technical analyst Wang Tao.
SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, said its holdings fell 0.13 per cent to 926.26 tonnes on Wednesday. Silver fell 0.3 percent to $16.92 an ounce. Platinum was down 0.12 percent at $942.74 per ounce and palladium slipped 0.1 percent at $714.40.