Gold is highly sensitive to rising interest rates because they cause bond yields to rise and tend to boost the dollar. The Fed's rate-setting committee is due to meet on July 25 and 26.
Gold was hitting resistance at its technically important 100- and 50-day moving averages, both around $1,250.
"We look to a break through the 100- and 50-day moving averages as a pivot point for further gains," MKS PAMP trader Sam Laughlin said in a note. Support was at the 200-day moving average around $1,230, analysts at ScotiaMocatta said.
Falling bond yields and a weakening dollar have helped gold rise 3.5 percent from a low of $1,204.45 on July 10, but this was driven by short-covering and not backed by demand for physical metal, Julius Baer analyst Carsten Menke said.
"Unless investment demand improves, the positioning-driven recovery should run out of steam," he said in a note.
Holdings in the SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, have fallen 4.3 percent, or 1.2 million tonnes, this month.