Gold prices rose to a one-month high on Thursday after the European Central Bank (ECB) pledged to keep interest rates steady through the summer of 2019 and investors fretted over weak Chinese data.
The precious metal's upside, however, was capped by a firmer dollar and a slightly more hawkish U.S. Federal Reserve.
The ECB said it would end its unprecedented bond purchase scheme by the close of the year, but signaled that this would not mean rapid policy tightening in the coming months.
"The ECB ... has now delivered an intrinsically hawkish announcement (i.e., the end of QE) in a dovish tone," Luigi Speranza, head of European market economics at BNP Paribas, said in a note.
Higher interest rates generally depress the price of gold, a non-interest bearing asset. The ECB move sent the euro down while the dollar index extended its gains as U.S. retail sales posted their strongest rise in six months, supporting the view the Fed would raise short-term interest rates further. On Wednesday, the Fed lifted key overnight borrowing costs increases by the end of this year, compared to one previously.
A stronger greenback typically makes dollar-priced gold more expensive for non-U.S. investors. But gold got a boost after China said it was ready to respond if U.S. President Donald Trump activated tariffs on Chinese goods.
"Trade tensions ... are supportive for gold but having said that we don't think the upside is open because there are headwinds coming from the global recovery ... and the fact that the Fed is more hawkish," said Societe Generale analyst Robin Bhar.
Inflation worries also lent support, said Michael Matousek, head trader at U.S. Global Investors. As production costs rise with inflation, companies have less profits to allocate toward employees, so wages are not growing much, he explained.
"(Investors) are purchasing gold, because they can understand it, as opposed to not understanding why that wage inflation is not going up more," Matousek said.