Gold erased earlier losses to trade sharply higher on Tuesday, shrugging off the dollar's buoyant start to the new year.
Spot gold was $7.89 higher, or 0.7 percent. at $1,160.10 an ounce.
U.S. gold futures for February delivery settled at $1,162 an ounce. The precious metal is coming off biggest quarterly loss in more than three years.
The U.S. dollar index, which measures the greenback's performance against six major currencies, traded 0.85 percent higher on Tuesday, after rising more than 1 percent earlier in the session.
Gold fell sharply in the wake of Donald Trump's victory in the U.S. presidential election in November, sliding more than 12 percent in the fourth quarter.
Trump's victory boosted the dollar and sparked a sharp rally in bond yields, lifting the opportunity cost of holding non-yielding gold and blunting investors' appetite for the metal.
"The market has carried the theme of higher dollar, yield and stocks into 2017 — a formidable challenge to gold," Saxo Bank's head of research Ole Hansen said. There were however some potential positives for gold, he added.
"We have plenty of event risks is month, with Donald Trump (taking office) on January 20 being the biggest," he said. "With exposure cut dramatically, we may see the selling pressure from long liquidation fade, as most of the those adjustments would have been carried out before year-end."
Hedge funds and money managers slashed their net long positions in COMEX gold to a near 11-month low and trimmed bullish bets in silver contracts in the week to Dec. 27.
A strong start to 2016 meant gold still managed to end last year with its first annual gain since 2012, of 8.5 percent.
Indications from the Federal Reserve that it would press ahead with further interest rate hikes this year after only their second rise in a decade last month are buoying the U.S. currency, and therefore pressuring gold.
"Further to the Fed's interest rate hike in December, along with a bullish view of the U.S. economy and the prospects for three more interest rate hikes in 2017, gold will remain weak," Sun Global Investments said in a note on Tuesday.
Palladium was the best performing precious metal last year, rising 20 percent, its biggest annual gain in six years. Platinum lagged gains in the wider complex, however, ending 2016 up just 1 percent.