Gold price steadied on Thursday after two days of losses as the US dollar index retreated from the previous day's seven-week high, while traders took to the sidelines ahead of a report on the U.S. jobs market on Friday.
The monthly non-farm payrolls data for December is being watched for clues on the timetable for further tapering of U.S. monetary stimulus, traders said. Weekly U.S. jobless figures on Thursday could also prompt some moves in gold.
Spot gold was at $1,226.54 an ounce at 1052 GMT, little changed from Wednesday, while U.S. gold futures for February delivery were up 80 cents an ounce at $1,226.30.
The metal has risen 1.8 percent this month as stock markets corrected and Chinese consumers bought ahead of the Lunar New Year, but its early strength has waned, with a rebound in European stocks to 5-1/2 year highs keeping a lid on gains.
"Last year, gold was often negatively correlated with the S&P 500," Peter Fertig, a consultant with Quantitative Commodity Research, said. "At the beginning of this year, money was flowing back from stocks into gold, but as we've seen a stabilisation of the stock market, we've seen money leaving gold and going back into equities."
The metal hit a one-week low after Wednesday's ADP private sector jobs report lifted expectations that the U.S. Federal Reserve will taper its bond-buying scheme sooner rather than later after opting to cut purchases by $10 billion a month in December.
"For tomorrow, I expect the labour market report will come in slightly above expectations, as has already been indicated by the ADP report," he said. "That will overall be positive for the stock market and negative for the precious metals."
Minutes of the Fed's last policy meeting released on Wednesday signalled the bank would take a cautious approach to scaling back the programme. Expectations that the scheme was coming to an end was a key factor in last year's 28 percent plunge in gold prices.
The European Central Bank is also due to announce its interest rate decision at 1245 GMT, followed by a news conference on policy at 1330 GMT.
CHINESE BUYING STEADIES
Buying of gold in China, which is tipped to have taken over from India as the world's biggest bullion consumer last year, steadied on Thursday after a strong start to the week, dealers said. Premiums on the Shanghai Gold Exchange held at $17.
The world's largest gold-backed exchange-traded fund, New York's SPDR Gold Shares, reported its first outflow of the year yesterday, of 1.5 tonnes, taking its holdings to a five-year low of 793.121 tonnes.
Last year the fund saw an outflow of more than 550 tonnes, the first year its holdings had fallen since its launch in 2004. Commodity exchange traded products suffered their worst year on record in 2013 as investors dumped their gold holdings and joined the equity rally, BlackRock data showed.
Bank of America Merrill Lynch said on Thursday it has cut its 2014 gold price forecasts by 11 percent to $1,150 an ounce, and its silver price forecasts by 21 percent to $18.38.
"While index rebalancing may support gold until 14 January, we see limited support to prices beyond that," it said. "Our continued bearish view is driven by the challenging macro-economic environment, which is best captured by rising U.S. 10-year rates and a persistent lack of inflation pressures."
Among other precious metals, Silver was up 0.2 percent at $19.54 an ounce, while spot platinum was down 0.25 percent at $1,410 and spot palladium was up 0.1 percent at $733.90.
Platinum's premium over gold held near Wednesday's 3-1/2 year high of nearly $190 an ounce. The white metal traded at a historically unusual discount to gold through much of 2011 and 2012 as gold soared to record highs, but has since recovered.