BENGALURU: Gold prices fell on Thursday as the dollar rallied and stocks bounced back following a recent selloff, taking steam out of bullion's momentum.
Spot gold was down 0.3 percent at $1,230.44 an ounce by 12:13 p.m. EDT (1614 GMT).
Prices had risen to $1,239.22 earlier, almost closing in on a more than three-month high of $1,239.68 hit on Tuesday as a global stock market sell-off spurred interest in gold, considered a safer investment.
US gold futures were up 0.2 percent at $1,232.90 an ounce.
"The reason that we are seeing a retracement in gold prices is primarily because of the spike in the dollar index," said Think Markets UK chief markets analyst Naeem Aslam.
The dollar index against a basket of other currencies hit a two-month high, while European Central Bank President Mario Draghi's remarks fed fears about the monetary union as he announced the bank would keep policy unchanged.
Gold briefly turned positive as the dollar moved lower versus the euro after Draghi said wage increases were not temporary and expressed confidence about inflation reaching the bank's target.
"It doesn't sound like that he (Dragi) is concerned much about the ongoing issues taking place in Italy. On the outset, traders have taken the message as a more hawkish statement and this pushed the euro-dollar pair higher," Aslam said in a note.
US stocks followed Europe higher on Thursday, a day after Wall Street suffered its worst day since 2011.
"With equities being higher today, gold is unable to sustain a rally," said Bob Haberkorn, senior market strategist at RJO Futures, adding that investors looking for safety are opting for Treasuries instead.
"Normally you would see gold trading significantly higher with this volatility, concerns in equity markets and global economic slowdown. But the fact that the US Federal Reserve is hawkish, gold is having a hard time sustaining any rallies."
US jobless claims rose last week, but the number of Americans receiving benefits fell to more than a 45-year low, pointing to tightening labor market conditions, which will likely keep the US central bank on course to increase interest rates again in December.
Prospects of higher US interest rates is negative for the dollar-priced gold as they raise the opportunity cost of holding the bullion.
In other precious metals, palladium fell 1.7 percent to $1,105.80 an ounce, drifting away from a record high of $1,150.50 an ounce hit on Tuesday.
Silver fell 0.4 percent to $14.59 per ounce, and platinum was up 0.2 percent at $829.10 an ounce.
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