U.S. consumer prices were unchanged in June and retail sales fell for a second straight month, pointing to tame inflation and soft domestic demand that diminished the prospects of a third interest rate increase from the Federal Reserve this year.
The New Zealand dollar held onto its overnight gains but was headed for a 0.8 percent weekly decline as investors await several USA economic indicators, including inflation numbers.
Gold was supported earlier in the week after a decline in U.S. Treasury yields drove down the U.S. Dollar against a basket of currencies.
Gold is out of favour with money managers and it's not the only precious metal facing investor exodus. It is also benefiting from U.S. dollar weakness as signs the Federal Reserve will pursue only a gradual rate tightening path weigh on the greenback after Senate testimony from Federal Reserve chair Janet Yellen.
Getty Images Federal ReservBoard Chairwoman Janet Yellen testifies before the Senate Banking, Houseing and Urban Affairs Committee in the Dirksen Senate Office Building on Capitol Hill July 13, 2017 in Washington, DC. The U.S. economy is healthy enough for the Fed to raise interest rates, though low inflation and a low neutral rate could leave the central bank with diminished leeway, Yellen said on Wednesday.
"The rate hike and the balance sheet tapering should inject a more positive growth outlook. globally and that should push gold prices down to our $1,200 an ounce estimate by the end of the year". Economists polled by MarketWatch had forecast a 0.1% increase in CPI.
Markets, broadly, interpreted her remarks as relatively dovish, which helped gold hold the mild gains of the past few sessions, said Ilya Spivak, a currency and metals strategist at Daily FX. The rally could extend even further if the number comes out as expected or lower.
Three big banks, JPMorgan Chase, Citigroup and Wells Fargo could also determine the direction of gold prices on Friday.
If the earnings reports from these banks come out bearish then stocks could plunge.
"Most of the downside in gold this morning was largely due to profit-taking, but more importantly, market sentiment is still on the rosy side and in a more positive environment", said OCBC analyst Barnabas Gan.
India's trade deficit narrowed more than expected to $12.96 billion in June as gold imports almost halved from a month earlier, government data showed.