LONDON - A slightly firmer dollar weighed on gold on Thursday, but prices were expected to continue to rebound in coming weeks from steep losses earlier this month.
Spot gold was down 0.2 percent at $1,204.05 an ounce at 1230 GMT, while U.S. gold futures edged down 0.1 percent to $1,210.70 an ounce.
"We have become more positive for gold. Although we have quite a high conviction for higher prices in the medium and long term, we see a little bit of a challenge in the short term as long as the dollar remains strong," said analyst Carsten Menke at Julius Baer in Zurich.
"You have to be cautious if you want to see higher gold prices, but we believe the bottom is here. From an investment point of view, it's really about averaging into the market, not just doing it all at once."
The dollar index was marginally firmer, making gold more expensive for buyers using other currencies, after the greenback hit a four-week low of 94.434 on Tuesday.
Spot gold has been trading within an $8 range over the past two sessions, with investors keenly watching the psychological $1,200 level after the metal broke below that mark and hit a 1-1/2-year low of $1,159.96 early this month.
The greenback's strength against the yuan was making bullion expensive for buyers in the world's biggest consumer China on Thursday, traders said.
Gold prices are headed for a fifth straight monthly fall, the metal's longest losing streak since early 2013.
It has declined about 7.7 percent so far this year amid international trade disputes and the Turkish currency crisis, with investors preferring the dollar as a safe haven.
"While a (relatively) stronger dollar and U.S. economic growth are hurting the bullion's appeal, concerns that Turkey's financial crisis could spread may give the metal a reversal of fate," said Renisha Chainani, head of commodity and currency research at Monarch Networth Capital.
"Gold's short-cover risks are elevated. The setup, with prices near key support (at $1,200) and record-short net positions, is a recipe for a sharp rally."
Spot silver fell 0.4 percent to $14.66 an ounce.
Platinum lost 0.7 percent at $790.49 while palladium gained 1.5 percent to $979.50 after hitting its highest since June 19 at $983.75.
The premium of palladium over platinum has increased to nearly $190 per ounce, the highest since March 2001.
"It is clearly dawning on market participants that the global platinum market is amply supplied this year... By contrast, the global palladium market is in deficit," Commerzbank said in a note.