Gold rose on Thursday as the dollar weakened after a 10-day winning streak and investors took
the opportunity to buy bullion as a hedge against political uncertainty in the United States and Europe.
Spot gold rose 0.63 percent to $1,240.31 an ounce and is up about 10 percent from a mid-December low. U.S. gold futures settled $8.50 higher at $1,241.60.
Concern over U.S. President Donald Trump's policies, as well as elections in the Netherlands, France and Germany this year, have fueled gold's rise to a peak of $1,244.67 on Feb. 8.
But the prospect of a higher dollar and U.S. Treasury yields after Fed Chair Janet Yellen said that U.S. interest rates may need to be raised in March pushed gold to $1,216.41 on Wednesday, its lowest since Feb. 3.
A stronger dollar makes gold more expensive for holders of other currencies, while higher yields increase the opportunity cost of holding non-yielding bullion. Higher interest rates would lift yields further.
"It's a tug of war between a higher probability of a U.S. rate hike in March and upcoming elections around Europe, which are creating uncertainty and demand for safe assets," said Jens Pedersen at Danske Bank.
Signs of faster economic growth and inflation in the United States and Europe are also driving demand for gold as an inflation hedge, Pedersen said.
U.S. residential construction and employment data on Thursday showed that the economy continued to rebound.
Adding support to gold prices, SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, increased its bullion holdings for an eleventh day on Wednesday.
"Despite soaring U.S. equities and a stronger dollar, gold is managing to hold its ground as dips are being bought," INTL FCStone's Edward Meir said in a note.