Gold prices steadied on Wednesday as the U.S. dollar eased off a three-week high, following an earlier drop in bullion to a one-year low as bullish comments from U.S. Federal Reserve Chair Jerome Powell boosted the greenback.
"The dollar came off a little bit later in trade, causing gold to go into positive territory, but I think it's temporary," said Walter Pehowich of Dillon Gage. Gold has shed more than 10 percent since touching a peak of $1,365.23 an ounce in mid-April, weighed down by a stronger dollar and rising U.S. interest rates.
Spot gold was up 0.02 percent at $1,227.3199 after touching its weakest since July 14, 2017 at $1,220.81. U.S. gold futures for August delivery settled up 60 cents, or 0.1 percent, at $1,227.20 per ounce.
"In this environment where we also see oil prices falling, and so less concern from investors about rising inflation, that's another negative for the gold price," said Jens Pedersen, senior analyst at Danske Bank in Copenhagen.
Gold is regarded as a hedge against inflation. The U.S. dollar slightly eased off a three-week high. It earlier rose across the board, after Powell gave an upbeat outlook for the U.S. economy.
Higher interest rates tend to boost the dollar and push up bond yields, making greenback-denominated gold more expensive for holders of other currencies and denting its appeal.
Russia, which dropped off the list of U.S. Treasuries holders in May, may have increased gold purchases as a result of recent sanctions imposed by the United States on Russia, analysts said, but that has yet to help bullion prices.
"Not so much of that is going to turn the market around," said Jeffrey Christian, managing partner of CPM Group. Longer-term, some analysts expect dollar strength to wane and possible geopolitical concerns and the heavy weight of gold bearish positions to help bullion recover.
"Short positions ... by speculative traders such as hedge funds are approaching record levels. With the U.S. dollar expected to eventually roll over and upside pressure to U.S. bond yields easing, medium- to longer-term buying opportunities (for gold) should open up," said analyst Carsten Menke at Julius Baer in Zurich said in a note.