The HSBC Flash China manufacturing purchasing managers' index recovered modestly to 47.8 in September
Gold slipped on Thursday as the dollar firmed and investors paused after boosting prices by 16 percent from this year's lows on measures by global central banks to support flagging economies.
The bond purchases and plans to do so by central banks from the United States to Japan had fuelled a rush for bullion as investors braced for higher inflation, sending gold prices to their highest since February in the previous session.
Investors are hoping China will be the next to take action after data on Thursday showed its vast manufacturing sector continued to contract in September.
The HSBC Flash China manufacturing purchasing managers' index recovered modestly to 47.8 in September from a nine-month low of 47.6 in August, staying below the 50 mark that divides expansion from contraction. A measure of output dipped to its lowest level in 10 months.
"It's not a very great improvement. It's still contracting so I still expect some more stimulus from China which could help gold," said Lynette Tan, analyst at Phillip Futures.
China unveiled a series of measures last week to help stabilise export growth, including faster payment of export tax rebates and boosting loans to exporters.
That was on top of a series of approvals for infrastructure projects worth more than $150 billion, two interest rate cuts, reduction in bank reserve requirements that freed about 1.2 trillion yuan ($190 billion) for lending and a steady series of liquidity injections into money markets.
Spot gold dropped 0.2 percent to $1,765.79 an ounce by 0431 GMT, after hitting a session high of $1,771.89. The precious metal peaked at $1,779.10 on Wednesday, its highest since Feb. 29.
The dollar rose versus the euro and a basket of currencies, weighing on gold and other dollar-denominated commodities like copper and oil.
Another round of economic stimulus measures from central banks, including China's, could still help gold break this year's high of around $1,790, although prices may only go up to $1,800, said Tan.
The last time gold prices hit $1,800 was in November 2011.
"After the next round of stimulus we probably wouldn't see much of an action towards the end of the year so it's likely to hold steady. There's no catalyst for gold to move higher after that," she said.
US gold futures for December delivery were down 0.2 percent at $1,768.60 an ounce.
"With investment demand gradually increasing and technical momentum positive, we think it is only a matter of time before gold prices make a first breakthrough attempt at $1,800," Credit Suisse said in a note.
Physical gold demand could pick up over the next two months during the wedding season in top consumer India, Tan said.
Spot platinum was down 0.7 percent at $1,620.99 an ounce, after striking miners at major South African platinum producer Lonmin said earlier this week they would return to work after six weeks of labour unrest during which 45 were killed.
But violence continued in South Africa where police fired tear gas and rubber bullets on Wednesday to disperse protesters near a mine run by the world's biggest platinum producer Anglo American Platinum, as unrest spread after strikers at rival Lonmin won big pay rises.