Gold gained on Thursday, shrugging off strong U.S. economic data and comments by U.S. Federal Reserve Chair Janet Yellen that further bolstered the case for hiking rates next month.
Markets had already come to terms with a U.S. rate rise, so they calmed down after an initial flurry following the release of the data.
"The market appears to now have almost fully priced in the fact that the Fed is going to put up rates 25 basis points next month and the initial shock of the U.S. presidential election has washed through," said analyst Tom Kendall at ICBC Standard Bank in London.
"I think the overreaction in fixed-income markets is coming to an end, and that means that the sell-off and overreaction in gold is also coming to an end."
Spot gold fell 0.9 percent at $1,226.18 an ounce at 1:50 P.M. EDT, after dropping 0.25 percent in the previous session. U.S. gold futures were down 0.8 percent to $1,213.60 an ounce.
After initially turning higher, the dollar index settled slightly weaker despite the biggest increase in U.S. consumer prices in six months and jobless claims falling to a 43-year low.
Weighing on gold recently have been expectations the U.S. Federal Reserve will hike rates next month. Gold is highly sensitive to interest rates.
Yellen said in prepared remarks to lawmakers that the Fed could raise U.S. interest rates "relatively soon" if economic data keeps pointing to an improving labor market and rising inflation.
Helping to support gold was a pick-up in demand in India after the withdrawal of high-denomination banknotes.
Among other precious metals, palladium rose 0.6 percent to $719.10 after touching a fresh six-week high of $723.60, while platinum slipped 1.3 percent to $931.50.
Palladium has sharply outperformed its sister metal recently with the spread between the two metals sliding to about $215 from $377 over the past two weeks. Kendall said the weak fundamentals for platinum supported the move, highlighted in a report earlier this week from refiner Johnson Matthey which said the platinum market could return to surplus for the first time in six years in 2017.
"Maybe things need to pause for a while, but certainly it's very hard to make a case why anyone should be preferring to invest in platinum versus palladium if they've got an investment horizon of less than a year or so," he added.
Silver dropped 0.2 percent to $16.93 an ounce.