Gold eased in light trading on Wednesday, giving back some of the previous session's gains, while platinum group metals rallied as improving U.S. auto sales and a better economic outlook triggered fund buying.
Bullion retreated after Tuesday's almost 1 percent gain, lifted by speculation the Bank of Japan will consider easing monetary policy again in January. Signs of better Asian physical demand from China and India, however, provide underlying support, traders said.
Market sentiment remains cautious after minutes from the December meeting of the Federal Open Market Committee showed several top officials favored slowing or stopping the stimulus program "well before'' the end of the year.
"The gold market now focuses on the ECB meeting tomorrow and the FOMC meeting at the end of the month. Other than those, gold has struggled to find a direction in a slow news week,'' said David Meger, director of metals trading at Vision Financial Markets.
The metal market will now closely monitor remarks from Thursday's meetings of both the Bank of England and the European Central Bank for any hint about the central banks' monetary policies. A string of U.S. economic data next week including retail sales, consumer prices and housing starts could offer new catalyst for the gold market, analysts said.
Spot gold was down 0.1 percent at about $1,656 an ounce. U.S. gold futures settled down $6.70 at $1,655.50, with trading volume at around 20 percent below its 30-day average, preliminary Reuters data showed.
Technical selling also weighed down on gold after the metal ran into resistance after it has failed to hold gains above its 200-day moving average at around $1,660 in recent sessions, analysts said.
In the physical market, gold buying tailed off in major consumer India after a strong start to the week as dealers awaited a further price correction, traders said.
Holdings of the world's largest gold-backed exchange-traded fund, New York's SPDR Gold Trust, eased for a second day and are down 11 tonnes from the start of the year.
Economic Optimism Boosts Palladium
Palladium rose 2.4 percent to $684 an ounce for its biggest one-day gain in around two weeks. However, palladium was still down 0.3 percent for week after it lost almost 3 percent on Monday.
Small gains in U.S. equities amid a brighter economic outlook and signs of continuous improvement in U.S. auto sales prompted funds to pour into palladium, Vision's Meger said.
Gold's premium over platinum, a historically unusual phenomenon that has persisted since the first quarter of last year, fell to $60, its lowest at around since mid-September on Wednesday.