Spot gold climbed on Wednesday as the U.S. dollar turned negative, but expectations for higher U.S. interest rates limited gains and kept the December gold contract pressured.
Spot gold gained 0.4 percent at $1,205.20 per ounce. Prices hit their highest level since Aug. 10 at $1,214.28 on Tuesday, but closed 0.8 percent lower, as U.S. Treasury yields rose after the United States and Mexico struck a trade deal.
"A lack of negative news in the market is pushing gold higher today," said Michael Matousek," head trader at U.S. Global Investors.
However, U.S. gold futures for December delivery settled down $2.90, or 0.2 percent, at $1,211.50 per ounce, pressured by strong global stocks and after the U.S. dollar index came off its daily lows, said George Gero, managing director of RBC Wealth Management.
"Gold pared losses, but strong stocks and dollar index increased in price (and) kept gold capped," Gero said.
The December contract closing price on Wednesday appeared lower from Tuesday's close because the price continued to fall after the previous session's settlement, said John Caruso, senior market strategist at RJO Futures.
Spot "gold is a tad higher now because we have managed to find support at $1,200 and that is attracting some intra-day bids at this stage," said Saxo Bank analyst Ole Hansen. "The market is more balanced than we have seen recently but we are still one spark short of a sustained rally here."
The dollar declined against a basket of currencies, which makes dollar-priced gold cheaper for holders of other currencies, boosting spot prices.
But multiple factors were keeping a lid on gold prices, including expectations for further U.S. interest rate increases this year, record bets on prices falling and liquidations in exchange-traded funds, analysts said.
"There is still a lot of uncertainty and the monetary policy backdrop is not positive for gold prices," said Capital Economics commodities economist Simona Gambarini.
Higher rates dent the appeal of non-interest-yielding gold.
The first support is at $1,200 per ounce and the next key level is $1,180, said ActivTrades chief analyst Carlo Alberto De Casa. Rising above $1,210 would be a first positive impulse, he added.
Gold prices are on track to fall for a fifth straight month, making it the longest losing streak since early 2013.