Gold edged up on Thursday and held near its highest in a week, supported by signs of a recovery in the euro zone and by expectations the US dollar could lose its footing after the Federal Reserve decided to keep buying bonds.
Previous rounds of asset purchases by the Fed drove down interest rates and weakened the greenback, spurring rallies in global stocks and prompting investors to turn to gold as a hedge against inflation.
Gold had risen US$2.10 to US$1,678.80 an ounce by 0253 GMT, after touching US$1,679.51 earlier in the day. It hit a near one-week peak of US$1,683.39 on Wednesday, although that was still well below a record of around US$1,920 marked in September 2011.
"Commodities have staged quite an impressive rally and today I expect some pullback, especially in gold," said Joyce Liu, investment analyst at Phillip Futures in Singapore, who pegged key resistance at US$1,700 an ounce.
"The Fed will maintain its bond buying policy and we see economic conditions in the euro zone improving slightly. I think we can see more weakness in the US dollar and as a result we may see gold going up a bit more."
US gold fell US$1.40 to US$1,678.50 an ounce.
The Fed left in place its monthly US$85bn bond-buying stimulus plan while indicating a recent stalling in US economic growth was likely temporary. It also repeated a pledge to keep purchasing securities until the outlook for employment "improves substantially".
The euro held near a 14-month peak against the dollar, while the yen tumbled to its weakest in more than two years against the US currency, sending the most active gold contract on the Tokyo Commodity Exchange to a record high.
TOCOM's December contract, which marked 4,944 yen a gram, has climbed more than 6 percent this year on a weakening yen after Prime Minister Shinzo Abe called on Japan's central bank to ease policy more aggressively.
"Of course a weaker yen attracts buyers, but I think we shall wait for the price to hit 5,000 yen before we see some selling," said a dealer in Tokyo.
In the physical market, gold purchases lost steam this week as stockpiling in China and other Asian markets ahead of the Lunar New Year drew to a close and as Indian buyers remained on the sidelines, with ample inventory in hand.