Gold retreated into the red on Thursday after the dollar rebounded on the back of a decision by the European Central Bank to extend monthly asset purchases until next December albeit at a lower monthly level.
Gold, which was slightly firmer before the ECB statement, fell as the market focused on the central bank's move to extend its quantitative easing programme until the end of 2017, beyond the six-month extension expected.
Investors gave the extension more weight than the ECB's unexpected decision to cut its asset buying to 60 billion euros ($64 billion) a month from next April from 80 billion euros now.
The dollar index moved into positive territory following the decision, making dollar-denominated gold more expensive for holders of other currencies.
Spot gold fell 0.2 percent to $1,171.16 an ounce by 2:38 p.m EDT.
U.S. gold futures for February delivery settled to $1,172.40 an ounce.
Bullion has shed more than 12 percent since its post-U.S. election peak of $1,337.40 on Nov. 9.
"If the ECB has the ability to trigger euro-dollar weakness again, and it breaks under the key 104.58-105 level, then you'll get the next phase of a dollar rally, which will be painful for gold," said Georgette Boele, ABN AMRO commodity strategist in Amsterdam.
The euro gave up all its gains versus the dollar after the ECB move, falling more than 1 percent to a low of 106.22.
Also weighing on gold were increased expectations the U.S. Federal Reserve will increase interest rates at its policy meeting next week, as higher U.S. rates raise the opportunity cost of holding non-yielding bullion.
Interest rates futures implied traders saw a 97 percent chance the Fed would raise rates at its policy meeting (FOMC) next Tuesday and Wednesday, CME Group's FedWatch program showed.
"As we head into the FOMC, it is certain that the Fed will raise rates this time. I believe this is mostly priced into gold. We might still see some reaction and the recent low of $1,157 may be revisited again," said Brian Lan, managing director at Singapore-based gold dealer GoldSilver Central.
Gold may get support, however, after the Fed meeting if investors close out positions betting price on falls, but this would only be temporary reprieve before a fresh bout of gold weakness in the New Year, Boele said.
Holdings of SPDR Gold Trust, the world's largest gold-backed exchange-traded fund (ETF), dropped 0.72 percent to 863.67 tonnes on Wednesday from a day earlier. Holdings have fallen more than 8 percent since November.
"There are no indications as yet when ETF liquidations might abate," UBS strategist Joni Teves said in a note. "Many gold ETF positions are currently under water - the risk of further selling appears high."
Silver fell 0.8 percent to $16.96 an ounce after rising more than 2 percent in the previous session.
Platinum rose 0.6 percent to $942, while palladium fell 1.6 percent to $721 per ounce after touching a low of $713.97, the weakest since Nov. 18.