Gold steadied on Wednesday ahead of a raft of U.S. data due later, having earlier risen to four-week highs as a retreat in the dollar and concerns over the medium-term inflation outlook helped support the precious metal.
Spot gold hit a peak of $1,377.65 an ounce and was bid at $1,371.55 an ounce at 1222 GMT, against $1,372.95 late in New York on Tuesday. U.S. gold futures for April delivery fell $1.50 an ounce to $1,372.60.
The precious metal has climbed more than 3 percent so far this month as the resurgent appetite for risk that boosted interest in higher-yielding assets in January receded.
In January we saw real interest rates, at least for long maturities in the United States, rise quite a bit, said Tobias Merath, head of commodities research at Credit Suisse. Ten-year yields went up, real rates went up and that prompted some profit taking.
Now yields are a bit more stable and inflation expectations are more to the forefront, and that is why gold prices have stabilized. Gold's usual inverse relationship with the dollar was also returning as economic conditions normalized, he added.
The dollar was down 0.1 percent against the euro. Its recovery from earlier lows has also kept a lid on gains in dollar-priced gold.
Dollar watchers are now awaiting a raft of U.S. data due later in the session for direction, with January producer price index and housing starts numbers due at 1330 GMT and industrial production reading out at 1415 GMT.
Today's PPI data could well give further clues as to the inflationary pressures building in the U.S. economy, after yesterday's import price data came in nearly double expectations at 1.5 percent, said CMC Markets analyst Michael Hewson.
The Federal Open Market Committee will also release minutes of its January 25-26 meeting on monetary policy.
ETF OUTFLOWS STEADY
Gold prices are also taking some support from ongoing tensions in the Middle East, and from a reduction in outflows from physically backed exchange-traded funds, whose gold holdings fell significantly in January.
Holdings of the largest, New York's SPDR Gold Trust, eased to a nine-month low on Tuesday, but outflows this month so far are well below January's levels.
Easing investor ETF outflows after a substantial January pullback helped to keep the new short-term uptrend intact, said VTB Capital analyst Andrey Kryuchenkov in a note.
Demand in number one gold consumer India was light with many buyers absent for a local holiday.
However, winter harvesting season, which is expected to leave more disposable income with gold-buying rural households, is underway, while marriage season has also started and will last through May.
Meanwhile, an Industrial and Commercial Bank of China executive said Chinese demand for physical gold and gold-related investments is growing at an explosive pace and is set to remain robust amid inflation concerns.
On the supply side of the market, African Barrick Gold (ABGL.L) said it expects to produce 700,000-760,000 ounces of gold in 2011, as it announced better-than-expected financial results.
Among other precious metals, silver was at $30.73 an ounce against $30.76. Platinum was at $1,825.40 an ounce against $1,827.24, while palladium was at $833.20 against $835, having touched a 10-year high at $847 on Tuesday.