Gold prices settled lower on Thursday, extending the previous day's more than 1 percent drop, after European Central Bank President Mario Draghi's comments that the bank may act to stem falling inflation at its June meeting knocked the euro.
Prices remained underpinned, however, by lingering concerns over the stand-off between government forces and pro-Russian separatists in Ukraine, and strong chart support at the metal's 100-day moving average.
for June delivery ended $1.20 lower at $1,287.70 an ounce. Meanwhile, spot gold was flat at $1,289 an ounce.
The dollar rose against a basket of currencies after Draghi's comments.
Chart: Precious Metals
Many economists expect a downward revision in the ECB staff's inflation forecasts, which could open the way for more stimulus such as an interest rate cut.
Pro-Moscow separatists in eastern Ukraine ignored a public call by Russian President Vladimir Putin to postpone a referendum on self-rule, declaring they would go ahead on Sunday with a vote that could lead to war.
On Wednesday gold posted its biggest daily fall since April 15 as traders frustrated by its failure to break above $1,315 took Putin's assertion that he was willing to negotiate over Ukraine as a signal to sell.
"If this conflict is going to calm down and the U.S. economy remains positive, it should be a positive environment for stocks and negative for gold, as investors go back to riskier markets where the return prospects are better than for gold," Peter Fertig, a consultant at Quantitative Commodity Research, said.
Despite yesterday's price drop, buying interest among Chinese dealers on the Shanghai Gold Exchange was relatively muted overnight, Swiss bullion house MKS said in a note.
"The market was expecting them to come in as buyers, yet despite the SGE premium sitting at its highest point in some time ($3-4 premium over Loco London), it failed to attract any reasonable buying interest," it said.
For more on precious metals click here.