Gold eased on Thursday as the dollar held onto gains after its biggest one-day rally in over a month, with uncertainty over the outlook for U.S. monetary policy this year adding to volatility.
The metal has steadied after its biggest quarterly rise in nearly 30 years, driven by a retreat in expectations that the Federal Reserve will push ahead with many rate hikes this year. Bullion was on pace Thursday for its worst 1-day loss since March 23, when it fell nearly 2 percent.
Gold is sensitive to rising interest rates, which lift the opportunity cost of holding non-yielding assets, while boosting the dollar. The outlook for further increases remains uncertain.
Spot gold was down 1.2 percent at $1,227.66 an ounce. U.S. gold futures for June delivery were down $18.80 an ounce at $1,229.40.
Atlanta Federal Reserve Bank President Dennis Lockhart on Thursday said he no longer expected to advocate a U.S. interest rate hike in April, but added there was still time for two or three rate hikes this year.
"Traders are not willing to accept that the Fed will not be raising the rates anytime soon," Naeem Aslam, chief market strategist at Ava Trade, said. "Most of the bad news is factored into the dollar and it appears they cannot push the greenback any further. This is impacting the price of gold.
The dollar rose another 0.18 percent versus a currency basket on Thursday as improved risk sentiment led investors to trim positions in low-yielding currencies, though it slipped from highs after weaker-than-expected March U.S. consumer price data.
Bullion-backed exchange-traded funds have seen outflows of late following sharp inflows earlier in the year. Holdings of the world's largest gold-backed ETF, SPDR Gold Shares, fell 5.05 tonnes on Wednesday to their lowest in a month.
"The big shock for the gold market, and commodities markets in general, was the big move higher in the dollar yesterday," Danske Bank analyst Jens Pedersen said.
"Overall I see gold prices remaining fairly stable around current levels," he said. "What risks the gains in the gold market this year reversing is the Fed starting to push ahead with rate hikes, but I don't see them hiking before September."
Among other precious metals, silver futures were down 0.8 percent at $16.20 an ounce, after reaching its highest since late October the previous day. Platinum futures were down 1.1 percent at $992.10 an ounce, while palladium futures were up 3.17 percent at $559.70 an ounce.
— CNBC's Chris Hayes contributed to this report.