Gold settled near a three-week low on Thursday, surrendering initial gains made after the European Central Bank cut interest rates to a record low, as a sharp rise in the dollar outweighed the impact of looser monetary policy.
Lower interest rates tend to benefit gold, as they cut the opportunity cost of holding non-yielding bullion, while stoking fears of inflation in the longer term.
However, gold has proved sensitive recently to pressure from a stronger dollar. The U.S. unit hit a seven-week high against the euro after the ECB move, and extended gains after third-quarter U.S. growth data beat consensus.
"The ECB statement and the rate cut still suggest that the European Central Bank is a long way away from tightening, underlining the fact that the Fed will have to move (to tighten policy) first,'' VTB Capital analyst Andrey Kryuchenkov said.
Gold prices have fallen 20 percent this year on expectations that the Federal Reserve would taper its economic stimulus program. Investors are keenly awaiting key U.S. data this week for clues as to when this will happen.
Analysts say Friday's U.S. jobs report for October may provide the most telling insight into the impact of a government shutdown last month that may provoke an extended continuation of Fed bond-buying which undermines the dollar.
For more information on commodities, please click here.