Gold fell 1 percent on Thursday as the dollar jumped versus the euro after the European Central Bank (ECB) cut inflation forecasts, while a U.S. jobs report that could provide clues on the timing of a Federal Reserve rate rise remained in focus.
The ECB left interest rates unchanged at record lows as expected, but lowered its forecasts for inflation and economic growth, citing a slowdown in emerging markets and weaker oil prices.
As a traditional hedge against inflation, gold suffered from the downward revision.
fell as much as 1.1 percent to a session low of $1,121.35 an ounce and was last down 0.8 percent at $1,124.35. U.S. gold for December delivery settled down 0.8 percent at $1,124.50 an ounce.
"No help for gold today: jobless claims, ECB hold(ing) rates unchanged, gains in stocks and wages show(ing) no inflation," said RBC Wealth Management adviser George Gero.
The dollar rose 0.5 percent against a basket of leading currencies, while global stock markets rallied amid news the U.S. trade deficit fell to a five-month low in July.
U.S. weekly jobs data indicated a strengthening labor market, a day ahead of the more critical monthly jobs report, due at 8:30 a.m. EDT (1230 GMT) on Friday, which should give a clearer picture about the strength of the world's biggest economy.
"Only amazingly good U.S. data would bring the prospect of the rate hike back to September from December," Citi strategist David Wilson said. "That could put immediate further pressure on the gold price."
Bullion traders remain wary of taking up new positions until they receive more clarity on whether the Fed will raise rates at its next meeting on Sept. 16-17, analysts said.
Higher interest rates would increase the opportunity cost of holding non-yielding bullion.
"The euro's down with the ECB comments, and the market's book-squared and looking toward tomorrow," said James Steel, chief metals analyst for HSBC Securities in New York.
The technical picture for gold looked bearish with near-term support at $1,117, ScotiaMocatta analysts said.
"We are bearish gold so long as it trades below the recent high of $1,170."
Also weighing on bullion was the absence of Chinese buyers with markets in China, a major gold consumer, closed through Friday for public holidays.