Gold edged down on Thursday to its lowest in nearly two weeks on waning risk aversion, and as the dollar steadied ahead of U.S. consumer inflation data that could offer clues on the timing of further interest rate hikes.
Spot gold was down 0.1 percent at $1,321.24 an ounce by 0620 GMT, after earlier dropping to its lowest since Sept. 1 at $1,318.75.
U.S. gold futures for December delivery fell 0.2 percent at $1,325.10 an ounce.
"It's really just the dollar driving this at the moment and risk-on sentiment. Stock markets continue to make historic highs. It's difficult to hold gold in this scenario," a Hong Kong-based trader said.
Asian stocks inched down on Thursday, consolidating after touching their highest in a decade.
The dollar, which fell to 2-1/2 year low against a basket of currencies and hit a 10-month low against the yen last week, was steady ahead of the U.S. inflation report for August, and a rebound in U.S. producer prices in August had lent some support. [USD/]
A stronger greenback makes dollar-denominated gold more expensive for holders of other currencies.
"Better-than-expected producer prices in the U.S. raised the spectre of a stronger Consumer Price Index (CPI) number later today. That could change the market's view on whether the Federal Reserve will increase rates later this year," ANZ analyst Daniel Hynes said in a note.
Inflation is a key economic factor the U.S. central bank considers when deciding monetary policy. A strong reading could raise expectations for future interest rate increases, which would pressure non-yielding bullion.
The Fed has a 2 percent inflation target, and a series of subdued inflation readings have dampened expectations for further interest rate hikes this year.
"We haven't managed to push higher after North Korea," the trader said, referring to the non-event of a missile launch or nuclear test from the country over the past weekend when it marked its founding day.
"Down to the $1,300 levels, it (gold) will start running into some support. You know you can never count them (North Korea) out of the equation."
A North Korean state agency threatened on Thursday to use nuclear weapons to "sink" Japan and reduce the U.S. to "ashes and darkness" for supporting a U.N. Security Council resolution and sanctions over its latest nuclear test.
Spot gold is expected to test a support at $1,313 per ounce, said Reuters technical analyst Wang Tao.
In other precious metals, silver shed 0.5 percent to $17.64 an ounce.
Platinum was unchanged at $976.85 an ounce, while palladium was up 0.2 percent to $938.70.