LONDON (Reuters) - Gold firmed on Wednesday, rising further from this week's 10-month low on the view that a surge in the dollar, higher risk appetite and expectations for a U.S. interest rate rise next week are already reflected in prices.
The metal extended losses earlier this week after its biggest monthly fall in more than three years in November as a host of negative factors in the broader markets met with waning physical demand in major consumers China and India.
Gold has found good support, however, at the $1,172 level, a chart retracement of its December to July rally.
Spot gold was at $1,173.56 an ounce at 1225 GMT, up 0.3 percent, while U.S. gold futures for February delivery were $5.7 an ounce higher at $1,175.80.
"This probably indicates that most of the selling pressure we've seen, particularly in the futures market, has started to fade," Saxo Bank's head of commodity research, Ole Hansen, said.
"You can take a view that most of the bad news for gold has now been priced in, given the sharp sell-off and the sharp reduction we've seen in positioning."
Gold's next move will likely be dictated by the currency markets. The dollar held steady against the euro on Wednesday ahead of key central bank meetings next week.
The European Central Bank is expected to extend its quantitative easing programme when it meets on Thursday, but questions remain over whether it will scale back its monthly asset purchases and send a formal signal on the eventual end of that programme.
The Federal Reserve is expected to lift rates at its meeting next week. That would likely weigh on gold, as rising U.S. rates raise the opportunity cost of holding non-yielding bullion, while boosting the dollar, in which the metal is priced.
"For now it appears some stability has come into financial markets, with signs that the U.S. dollar has been tightening over the past few days," MKS said in a note. "This is likely due to some profit taking ahead of the major upcoming risk events including the ECB policy meeting and (Fed)."
Among other precious metals, silver was up 0.3 percent at $16.76 an ounce.
Palladium was down 1.1 percent at $728.73, while platinum was 0.1 percent lower at $933, after hitting a more than three-week high in the previous session.
(Additional reporting by Swati Verma and Nallur Sethuraman in Bengaluru; editing by Ruth Pitchford and David Clarke)