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Gold edged lower in Asian trading on Thursday as the dollar traded close to a 5-1/2-year high against a basket of major currencies, but the metal managed to hold above the key $1,200-an-ounce level.
Investors were awaiting a policy decision by the European Central Bank on stimulus measures and US jobless claims data to see if they held any further boosts for the dollar.
Spot gold fell 0.2 per cent to $1,207.21 an ounce by 0343 GMT, after rising nearly 1 per cent in the previous session.
The US dollar index climbed to its highest in more than 5-1/2 years on Wednesday on optimism over the world's largest economy. Data showed US private companies added workers at a fairly brisk clip in November and the services sector grew strongly.
"It's a wait-and-watch situation right now because there are some key events over the next two days. We have the ECB meet today and (US) non-farm payrolls on Friday, and both could potentially trigger big moves again," said a precious metals trader in Singapore.
"It looks like we will consolidate near $1,200 for now but the risks from the last few months remain," the trader said.
Gold climbed to a one-month high of $1,220.99 an ounce on Monday, after having slumped to $1,142.91 in the same session. Friday's data would help investors gauge the strength of the US economic recovery and how it would impact interest rates.
Gold prices gained in the first two quarters of the year, but have fallen in the second half as expectations of rate hikes lifted the dollar. Demand for dollar-denominated gold tends to weaken on a stronger greenback as it makes the metal more expensive for holders of other currencies and also lowers its hedge-appeal.
Gold has also been hurt by softer oil prices recently as the metal is seen as a hedge against oil-led inflation. Some recent gains in gold are seen as a result of short covering, prompting traders to be wary of the moves higher.
"Much of the buying recently has been done by shorts exiting the market and not fresh longs entering the market or old longs extending positions," HSBC analysts said in a note.
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