Gold settled about 1 percent lower on Thursday as the dollar gained and accommodative U.S. Federal Reserve monetary policy counterbalanced worries over the strength of Chinese demand and sales from gold-backed funds.
Holdings in the world's biggest exchange-traded fund, SPDR Gold Trust, fell 8.39 tons to 798.43 tons on Wednesday, the biggest daily outflow since late December.
for June delivery dropped settled 0.7 percent lower at $1,293.90 an ounce, while spot gold was last down 0.6 percent to $1,294 an ounce. Volumes were seen thinning ahead of the Easter holiday break, traders said.
Chart: Precious Metals
"Volumes are fairly low as traders start to square positions ahead of the Easter break,'' VTB Capital analyst Andrey Kryuchenkov said.
"We are consolidating after the pullback we had at the start of the week but there is not much to push prices higher, there is no physical demand and the dollar is only marginally lower.''
The metal had fallen nearly 2 percent on Tuesday and has remained broadly range-bound since then around $1,300 on fears over slowing demand in top consumer China.
A report from the World Gold Council earlier this week said that Chinese firms could have locked up as much as 1,000 tons of gold in financing deals, indicating that a big slice of imports has been used to raise funds due to tight credit conditions, rather than to meet consumer demand.
The dollar was last up 0.1 percent against a basket of currencies after Fed Chair Janet Yellen reiterated an accommodative monetary policy stance.
Her dovish remarks offset data suggesting that the U.S. economy was regaining momentum. U.S. industrial production rose at a faster-than-expected clip in March, while the Fed's Beige Book report showed economic activity picked up in recent weeks.
Any escalation in tensions between Russia and the West over Ukraine could offer some upside for bullion, analysts said.
Gold prices are likely to keep falling through 2015 after a second annual decline this year as U.S. monetary policy normalizes and investors switch to higher-yielding assets, the GFMS team at Thomson Reuters said in a report on Thursday.
Among other precious metals, platinum prices fell to their lowest in more than two weeks on Thursday, reversing initial gains after South Africa's biggest platinum producers offered to raise wages for miners in a bid to end a 13-week-old strike that has curbed metal output.
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