Gold prices settled higher on Thursday after softer than expected U.S. data pulled the dollar from an earlier four-year and U.S. stock indexes fell to multi-week lows.
U.S. gold futures for December delivery settled $2.40 higher at $1,221.90 an ounce.
Spot gold was at $1,223 an ounce, up 0.5 percent, after hitting a low of $1,206.85 an ounce earlier, its weakest since Jan. 2.
The U.S. unit pared loses after U.S. services PMI and durable goods data came in softer than expected, having earlier surged on expectations that U.S. and European monetary policies are parting ways.
Gold prices may be prone to a reversal after falling nearly 6 percent this month, analysts said.
"The market has now built up quite a big short, so it will require some additional price-negative news to attract further selling through key support below, and at the moment, I cannot see where that should be coming from," Saxo Bank analyst Ole Hansen said.
"We saw a quick spike on Friday and that goes to show that the shorts are beginning to worry that we may see a speculative washout, taking the price back up towards 1,250, before it probably becomes a sell once again," Hansen added.
Gold has come under pressure from strength in the dollar after a run of upbeat U.S. data highlighted the diverging economic outlook for the euro zone and the United States.
Expectations are growing that the Federal Reserve will begin tightening rates early next year, boosting the dollar while raising the opportunity cost of holding gold.
The prospect of diverging monetary policy between the Fed and the European Central Bank sent the euro to a 22-month low against the U.S. currency.