Gold prices slipped below $1,670 an ounce on Friday as stock market weakness and a firmer tone to the dollar prompted some buyers to cash in gains after the metal's biggest one-day rise this year.
Gold jumped more than 1 percent, rising back above its 200-day moving average, a key chart level, after the European Central Bank gave no indication after a policy meeting it would cut rates, prompting a rally in the euro.
The metal struggled to maintain those gains, however, as the dollar steadied against the single currency on Friday and as European stock markets fell.
Spot gold was down 0.3 percent at $1,669.40 an ounce at 2.28pm UAE time, while US gold futures for December delivery were down $8.40 an ounce at $1,669.60.
Gold is down 0.25 percent so far this year after posting its worst quarterly performance in more than four years at the end of 2012, as a failure to capitalise on gold-friendly US quantitative easing measures shook confidence in the metal.
"(Spot gold) has moved back above its 200-day moving average and as investors are still a bit shaken in their beliefs, some quick profit has been taken today," Saxo Bank vice president Ole Hansen said. "It's critical that we close above 1,662 today, as it will be the first sign that a bottom has been established."
"We still need to move back above 1,710 before we get some clean air in front of us," he said. "Chinese (inflation) and gold accumulation in 2012, together with additional QE initiatives in Japan and the weaker dollar, should all in all help improve sentiment."
Tokyo gold futures hit a record high of 4,820 yen a gram ($1,699.62 an ounce) after the yen dropped to a two and a half year low against the dollar on expectations of more monetary easing by the Bank of Japan.
Monetary easing measures tend to benefit gold, as they hurt confidence in paper currencies, keep up pressure on long-term interest rates and stoke inflation fears. US easing measures in particular have been a key driver of higher gold prices.
"If the currency devaluation race persists, gold is likely to remain in demand as an alternative currency," Commerzbank said in a note. "We therefore believe that the latest weakness in the gold price will not be lasting."
From a chart perspective, gold's rise back above its 200-day moving average, currently at $1,661, is seen as a positive sign for prices, according to analysts who study past price patterns for clues as to the next direction of trade.
"Gold had a strong close higher..., which negates the short-term bearish posture and brings us back to neutral," ScotiaMocatta said in a note. "Support is at 1,625, the low from January 4. Resistance is at 1,694, the high from January 2."
Holdings of the world's biggest gold-backed exchange-traded fund, New York's SPDR Gold Trust, declined by a further 2.1 tonnes on January 10, data from the fund showed. It has seen an outflow of 13.1 tonnes so far this year.
Platinum outperformed, rising 0.1 percent to $1,624 an ounce. The white metal, used in autocatalysts, has risen 5.5 percent so far this year, while gold has declined.
Platinum's historically unusual discount to gold narrowed to just over $40 an ounce, from $137 at the end of 2012 and $152 this time last year. The gold/platinum ratio, which measures the number of platinum ounces needed to buy an ounce of gold, fell to its lowest since April 2012 at 1.03 on Friday.
The metal benefited in the second half of 2012 from a deadly wave of violence linked to industrial action in South Africa, source of four out of five ounces of the world's platinum.
"The possibility of production reductions comes at a time when automotive demand appears to be rising in most parts of the world," HSBC said in a note. "According to our supply/demand model, we anticipate a 256,000 ounce platinum deficit this year.
"If South African production declines are greater than we envisage, we may see a wider deficit, with a commensurately positive impact on prices," it added.
Silver was down 0.5 percent at $30.67 an ounce, while spot palladium was down 0.3 percent at $694 an ounce.