Gold snaps two-day decline, Chinese buying supports
Gold snapped a two-day decline on Thursday, as the dollar edged lower and signs of physical demand emerged from Chinese buyers.
Gains were kept in check by strong U.S. economic data suggesting an end to the Federal Reserve's stimulus.
Activity was relatively thin, as U.S. financial markets will be shut on Thursday for the Thanksgiving holiday.
(Read more: Has the dreaded taper already started?)
Spot gold rose 0.4 percent to $1,242 an ounce by 1040 GMT. It fell to a 4-1/2 month low of $1,227.34 on Monday.
U.S. gold futures rose 0.3 percent to $1,241.50 an ounce.
"The story for gold remains pretty much the same... and the drivers for now remain the dollar and the U.S. data," VTBCapital Andrey Kryuchenkov said.
On the downside, support stands at $1,220, and then the longer-term level would be $1,200, Kryuchenkov added.
(Read more: Bargain hunters get ready to buy gold)
The dollar index fell 0.2 percent against a basket of currencies, retreating after gaining from relatively positive U.S. data in the previous session.
U.S. jobless claims unexpectedly fell last week and the November Thomson Reuters/University of Michigan consumer confidence improved from a preliminary reading. The Chicago PMI held up better than expected last month after surging in October.
However, a soft October durable goods report was the only dent to an otherwise upbeat set of figures.
Investors fear strong economic data could prompt the Fed to cut back on its $85 billion in monthly bond purchases, which have bolstered gold as a hedge against inflation over the past few years.
As a gauge of investor sentiment, holdings in SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, fell 5.7 tonnes to 843.21 tonnes on Wednesday to their lowest since early 2009.
The fund has seen outflows of more than 450 tonnes this year as investors put more money into rallying equities. The outflows from ETFs have been a big factor in gold prices dropping more than 25 percent in 2013.
Chinese buying strong
China, which is expected to overtake India as the biggest consumer of the metal this year, has seen a pick-up in demand this week due to lower prices.
Traded volumes of 99.99 percent purity gold on the Shanghai Gold Exchange hit 18.3 tonnes on Thursday, their highest since Oct. 8, according to Reuters data.
China's net gold imports from Hong Kong climbed to their second highest on record in October as it bought more than 100 tonnes of gold for a sixth straight month to meet unprecedented demand.
Silver rose 0.3 percent to $19.70 an ounce, after falling one percent in the previous session. Spot platinum gained 0.3 percent to$1,353.70 an ounce after losing more than one percent in each of the previous two sessions and spot palladium gained 0.3 percent to $715.75 an ounce.