Gold extended gains above $1,200 an ounce on Thursday, rising for a second straight session on a softer dollar and weak US industrial production data.

Spot gold gained 0.3 per cent to $1,204.76 an ounce by 0659 GMT, after climbing 0.7 per cent on Wednesday.

The dollar dropped to a one-week low on Thursday due to the weak US economic data, though it recovered from the early lows.

A weaker dollar makes gold cheaper for holders of other currencies, while also increasing the metal's appeal as a hedge.

The dollar weakness "provided a lift for gold as it moved over the technical 50-day moving average of $1,198 and psychological $1,200 level," said HSBC analyst James Steel.

However, Steel and others said prices could face a tough time moving much higher from the $1,200 level, leaving gold to consolidate in the near term.

"The level of $1,200 continues to prove to be an extremely stubborn support and resistance, and in the short term we can expect gold prices to continue hovering about (this) level," said Howie Lee, an analyst at Phillip Futures.

For the moment, gold was also getting support from data that showed US industrial output posted its biggest drop in more than 2-1/2 years in March in part as oil and gas well drilling plummeted.

The dour report was the latest sign that growth slowed sharply in the first quarter and suggested the U.S. central bank could delay raising interest rates until later this year.

Any delay in an expected hike in US rates could boost demand for bullion, a non-interest-paying asset. Traders will be watching data to be released on Thursday and a Federal Reserve policy meeting later this month for clues on when the U.S. central bank would begin to hike rates.

Analysts have made big cuts to expectations for gold and silver prices this year and the next after the metals, weighed down by the prospect of higher US interest rates, failed to recover last year's losses in early 2015.

A poll conducted by Reuters over the last month returned a median forecast of $1,209 for gold this year, down from $1,234 in a similar poll conducted in January.

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