Gold prices rose on Tuesday to a near two-week high on weak Japan inflation data, but trading was thin with traders in the United States returning after the long Christmas weekend and London markets still closed.
Most analysts believe broad concerns about European banks and uncertainty around U.S. President-elect Donald Trump's policies will likely support gold prices in 2017.
However, the price of gold could tumble over the near term if U.S. bond yields continue to climb, they said.
Spot gold was up 0.39 percent at $1,137.98 an ounce by 10:27 a.m. EST (1527 GMT) after hitting its highest since Dec. 14 at $1,148 an ounce.
U.S. gold futures rose 0.5 percent to $1,139.10 per ounce.
Data showed Chinese industry racked up its strongest profit growth in three months in November, suggesting the world's second-largest economy was improving. In Japan, however, core consumer prices fell in annual terms for the ninth month as household spending slumped.
"Maybe a top is in on Japan's growth and with that you could start to see stimulus measures and that's why gold and silver ticked up," said Phillip Streible, senior commodities broker for RJO Futures in Chicago.
"I think with gold, we can realistically get back up to $1,250 an ounce in 2017," Streible said, adding that equity markets were possibly due for a correction.
Equity markets in the U.S. opened higher on Tuesday with the Dow Jones Industrial Average resuming its march towards 20,000 and the Nasdaq hitting a record high.
Gold's gains were limited by a strong dollar.
The dollar rose against the yen and euro as some investors emerged out of the holiday lull to hunt for bargains as the market entered the last trading stretch of the year. [USD/]
The U.S. currency had climbed to a 10-month high of 118.660 yen mid-month on expectations of stronger growth after Trump takes office in January. A firm dollar curbs demand for commodities priced in the greenback by making them more expensive for holders of other currencies.
"People are waiting until Trump becomes the U.S. president and until we see his real policies or what he will do when he takes the office," said Yuichi Ikemizu, head of commodity trading at Standard Bank in Tokyo.
"People are just watching the other markets like dollar and stock markets and kind of expecting the stock market and financial market to be good under Trump government. In that case, people don't need gold and instead invest in stocks."
Among other precious metals, spot silver was up 0.6 percent at $15.81 an ounce
Platinum gained 1.84 percent to $904.8, snapping six straight sessions of losses. Palladium rose 0.8 percent to $661 an ounce, on track for its biggest one-day rise in two weeks.
(Reporting by Devika Krishna Kumar in New York and Swati Verma in Bengaluru; Editing by Amrutha Gayathri and Meredith Mazzilli)